P16-14 M&M and Taxes [LO2] Frederick & Co. expects its EBIT to be $92,000 every
ID: 2643030 • Letter: P
Question
P16-14 M&M and Taxes [LO2]
Frederick & Co. expects its EBIT to be $92,000 every year forever. The firm can borrow at 9 percent. Frederick currently has no debt, and its cost of equity is 15 percent. If the tax rate is 35 percent, the value of the firm is $ . The value will be $ if Frederick borrows $60,000 and uses the proceeds to repurchase shares. (Do not include the dollar signs ($). Round your answers to 2 decimal places. (e.g., 32.16))
Frederick & Co. expects its EBIT to be $92,000 every year forever. The firm can borrow at 9 percent. Frederick currently has no debt, and its cost of equity is 15 percent. If the tax rate is 35 percent, the value of the firm is $ . The value will be $ if Frederick borrows $60,000 and uses the proceeds to repurchase shares. (Do not include the dollar signs ($). Round your answers to 2 decimal places. (e.g., 32.16))
Explanation / Answer
Answer..
value of unleverd firm=ebit(1-tax)/ke*100 =92000(1-.35)/15*100 398667Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.