A company used to have zero debt and just issued 195,000 of perpetual 9% debt and used the proceeds to repurchase stock. The company expects to generate 83,000 of EBIT in perpetuity. The company distributes all its earnings as dividends at the end of each year. The firm's unlevered cost of capital is 15% and the tax rate is 40%. What is the value of the levered firm after the repurchase? PV of a perpetuity: C/r MM Theorem 1 with taxes: V₁ = Vu+ TC B $420,000 $400,000 $390,000 $410,000

Rian Corporation is currently working without using debt. The estimated operating profit per year is $16.065,180.00 while the equity capitalization rate (ke) is 18% pa. In the coming year, Rian is considering replacing some of his shares with a debt of $50 million, with an interest rate of 15% per annum. Question: a. Calculate the value of own capital capitalization (CS), the total capitalization value of the company (V), and the overall capitalization rate (ko) using the Net Income Approach. b. Calculate the amount of equity capitalized value, total capitalization value of the company, and overall capitalization rate using the traditional approach, if additional debt causes the equity capitalization rate (ke) to increase to 20%. c. Draw a graph of the two approaches.

A company just issued $140000 of perpetual 9% debt and used the proceeds to repurchase stock. The company expects to generate 121000 of EBIT in perpetuity. The company distributes all its earnings as dividends at the end of each year. The firm's unlevered cost of capital is 10% and the tax rate is 40%. Use FTE to calculate the value of the company's equity. Your Answer: Answer

A company just issued $453000 of perpetual 5% debt and used the proceeds to repurchase stock. The company expects to generate 107000 of EBIT in perpetuity. The company distributes all its earnings as dividends at the end of each year. The firm's unlevered cost of capital is 14% and the tax rate is 25%. Use APV method to calculate the value of the company with leverage. Your Answer: Answer