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notsponge [240]
3 years ago
9

As a consultant to First Responder Inc., you have obtained the following data (dollars in millions). The company plans to pay ou

t all of its earnings as dividends, hence g = 0. Also, no net new investment in operating capital is needed because growth is zero. The CFO believes that a move from zero debt to 20.0% debt would cause the cost of equity to increase from 10.0% to 12.0%, and the interest rate on the new debt would be 8.0%. What would the firm's total market value be if it makes this change? Hints: Find the FCF, which is equal to NOPAT = EBIT(1 %u2013 T) because no new operating capital is needed, and then divide by
(WACC %u2013 g).

Oper. income (EBIT) $800 Tax rate 40.0%
New cost of equity (rs) 12.00% New debt ratio 20.0%
Interest rate (rd) 8.00%
Business
1 answer:
sineoko [7]3 years ago
8 0

Answer:

the firm's total market value be if it makes this change is up to 4545.45

Explanation:

  • Step 1. Find the WACC according to the following calculation.

  • Step 2. Set up the variables. WACC = 0.8*12 + 0.2*8*(1-0.4) = 9.6 + 0.96 = 10.56 % ;

  • Step 3. Solve.  FCF = EBIT/WACC = 800*(1-0.4)/0.1056 = $ 4545.45

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Answer:

Option D                      

Explanation:

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8 0
3 years ago
4. AirCar LLC, a producer of consumer electronics, had provided its employees an annual bonus. After a change in management, the
Ivan

Answer:

Option C. It provided individual incentives; now it provides organizational incentives.

Explanation:

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3 years ago
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6 0
3 years ago
When the auditors express an opinion on financial statements their responsibilities extend to:
Westkost [7]

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Explanation:

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4 0
3 years ago
4: In 2013, the United States Postal Service charged $0.46 to mail a letter weighing up to 1 oz. and $0.20 per ounce for each ad
Gekata [30.6K]

Answer:

The function that would determine the cost in dollars, c(z), of mailing a letter weighing z ounces is (0.46 + 0.20z)

Explanation:

Weight of the letter = z ounces (z is an integer greater than 1)

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cost to mail an additional ounce = $0.20

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Total cost of mailing a letter weighing z ounces = $0.46 + $0.20z

Therefore, cost function, c(z) = 0.46 + 0.2z

6 0
4 years ago
Read 2 more answers
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