Rozanski Co. currently has EBIT of $47,000 and is all equity financed. EBIT are expected to grow
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Question:
Rozanski Co. currently has EBIT of $47,000 and is all equity financed. EBIT are expected to grow at a rate of 4% per year. The firm pays corporate taxes equal to 39% of taxable income. The cost of equity for this firm is 19%.
Suppose the firm has a value of $191,133.33 when it is all equity financed. Now assume the firm issues $70,000 of debt paying interest of 10% per year and uses the proceeds to retire equity. The debt is expected to be permanent.
a. What will be the value of the firm?
b. What will be the value of the equity after the debt issue?
Related Book For
Entrepreneurial Finance
ISBN: 978-0538478151
4th edition
Authors: J . chris leach, Ronald w. melicher
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