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    M&M with Corporate Taxes

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    Sci-fi is originally all equity financed (unlevered). All earnings are paid out as dividends, and the growth rate is zero. The firm decides to issue $8,000,000 in debt at 6% and to use the proceeds to repurchase stock. The capital structure change is permanent (so debt is perpetual). Fill in all of the missing information in the table below.

    Unlevered Levered
    EBIT 7,500,000 7,500,000
    INTEREST
    EBT
    Taxes (40%)
    Net Income
    #Shares 1,000,000
    EPS
    Unlevered return 10% 10%
    Return on Equity rS
    Price
    Firm Value (V)
    WACC

    © BrainMass Inc. brainmass.com October 10, 2019, 5:41 am ad1c9bdddf
    https://brainmass.com/economics/personal-finance-savings/m-m-with-corporate-taxes-514089

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    Unlevered Levered
    EBIT $7,500,000 $7,500,000
    INTEREST $0 $480,000
    EBT ...

    Solution Summary

    Solution calculates the missing information and completes the table. Calculations are carried out in MS Excel format.

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