Quillpen Company is unlevered and has a value of $25 billion. An otherwise identical but levered firm finances 30% of its capital structure with debt. Under the MM zero-tax model, what is the value of the levered firm? Enter your
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- Please show your work for the following Suppose that your firm's current unlevered value, V*, is $800,000, and its marginal corporate tax rate is 21 percent. Also, you model the firm's PV of financial distress as a function of its debt level according to the relation: PV of financial distress = 800,000 × (D/V*)2. What is the firm's levered value if it issues $200,000 of perpetual debt to buy back stock? Multiple Choice A) $920,000. B) $869,555. C) $792,000. D) $350,000.MM Model with Zero Taxes An unlevered firm has a value of $625 million. An otherwise identical but levered firm has $75 million in debt. Under the MM zero-tax model, what is the value of the levered firm? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to the nearest whole number. LA millionAn unlevered firm has a value of $500 million. An otherwise identical butlevered firm has $50 million in debt. Under the MM zero-tax model, whatis the value of the levered firm?
- An unlevered firm has a value of $800 million. An otherwise identical butlevered firm has $60 million in debt at a 5% interest rate, which is its pretax cost of debt. Its unlevered cost of equity is 11%. No growth is expected.Assuming the corporate tax rate is 35%, use the MM model with corporatetaxes to determine the value of the levered firm.Now, take the same firm, but put it in an environment where there is a 28% tax rate. h. What is the value of the unleveraged firm in the world with taxes and what will be the price of each equity share? i. Calculate each of the following for the unleveraged firm: ROA ROE • EPS • Cost of Equity (Rs) WACC Now add the $140 million in perpetual debt. j. What is the value of the leveraged firm in the world with taxes and what will be the price of each equity share? k. How many shares will be left outstanding after the change in capital structure this time 1. Calculate each of the following for the leveraged firm: • ROA ROE • EPS • Cost of Equity WACC m. Using Rs & Rb and the relevant annual CF to equity and debt, calculate the value of the Equity (S), the value of debt (B), and the value of the firm (V). n. Using WACC and the relevant annual CF to the firm, calculate the value of the firm (V).Assuming that there is an unlevered firm and a levered firm. The basic information is given by the following table. Table1: Information of the firms Unlevered firm Levered firm EBIT 10000 10000 Interest 0 3200 Taxable income Tax (tax rate: 34%) Net income CFFA Assuming that cost of debt =8%; unlevered cost of capital =10%; systematic risk of the asset is 1.5 Fill in the blanks What is the present value of the tax shield? What is the size of debt? Calculate the following values:a) value of unlevered firm; b) value of the levered firm; c) equity value; d) Cost of equity; e) cost of capital; f) systematic risk of the equity Suppose that the firm changes its capital structure so that the debt-to-equity ratio is 1.0, then recalculate the systematic risk of the equity Based on the results of question (4), if there are the following two mutually exclusive projects. What is the crossover required rate of return…
- Assuming that there is an unlevered firm and a levered firm. The basic information is given by the following table. Table1: Information of the firms Unlevered firm Levered firm EBIT 10000 10000 Interest 0 3200 Taxable income Tax (tax rate: 34%) Net income CFFA Assuming that cost of debt =8%; unlevered cost of capital =10%; systematic risk of the asset is 1.5 Fill in the blanks What is the present value of the tax shield?Give typing answer with explanation and conclusion A company has an expected EBIT of $18,000 in perpetuity, a tax rate of 35%, and a debt-to- equity ratio of 0.75. The interest rate on the debt is 9.5%. The firm’s WACC is 9%. a) If the company has not debt, what would be the unlevered cost of capital and firm value? b) Suppose now the company has $55,714.29 in outstanding debt. Using your answer to part a) and M&M Proposition I with taxes, what is the value of this levered firm?An unlevered firm has a value of $900 million. An otherwise identical but levered firm has $180 million in debt at a 4% interest rate, which is its pre-tax cost of debt. Its unlevered cost of equity is 12%. No growth is expected. Assuming the federal-plus-state corporate tax rate is 25%, use the MM model with corporate taxes to determine the value of the levered firm. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to the nearest whole number. S million
- 1. An unlevered firm has a value of R600 million. An otherwise identical but levered firm has R240 million in debt. Under the Miller model, what is the value of the levered firm if the corporate tax rate is 34%, the personal tax rate on equity is 10%, and the personal tax rate on debt is 35%?Stevensons bakeries and all equity firm that has a projected perpetual EBIT of $144,000 per year. The cost of equity is 10.5% and the tax rate is 21%. Assume there's no depreciation, no capital spending and no change in networking capital. The firm can borrow perpetual debt at 5.8%. Currently, the firm is considering converting to a debt equity ratio of .54. What is the firms levered value? MM assumptions hold.Given the following information, how much value will leverage will add to, or subtract from, the firm if the firm were to add one additional pound of debt? Corporate tax = 15% Personal tax on debt = 30% Personal tax on equity = 10% Select one: -0.09 0.00 0.30 0.55 None of the above