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M&M with Corporate Taxes

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

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Please refer attached file for better clarity of functions in MS Excel.

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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