Explore BrainMass
Share

Explore BrainMass

    Value of firm if it borrows funds to repurchase shares

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    M.G. Movers can borrow at 7.5 percent. The firm currently has no debt, and the cost of equity is 16 percent. The current value of the firm is $540,000. What will the value be if the firm borrows $160,000 and uses the proceeds to repurchase shares? The corporate tax rate is 34 percent.

    © BrainMass Inc. brainmass.com October 10, 2019, 1:29 am ad1c9bdddf
    https://brainmass.com/business/dividends-stock-repurchase-and-policy/value-of-firm-if-it-borrows-funds-to-repurchase-shares-336801

    Solution Preview

    Value of a levered firm = Value unlevered + PV of interest tax ...

    Solution Summary

    The solution explains how to determine the value of firm if it borrows funds to repurchase shares

    $2.19