Question

Bird Enterprises has no debt. Its current total value is $49.4 million. Assume debt proceeds are...

Bird Enterprises has no debt. Its current total value is $49.4 million. Assume debt proceeds are used to repurchase equity.

a. Ignoring taxes, what will the company’s value be if it sells $19.6 million in debt? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, round your answer to the nearest whole number, e.g., 1,234,567.)
b.

Suppose now that the company’s tax rate is 22 percent. What will its overall value be if it sells $19.6 million in debt? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.)

a. Value of the firm ___

b. value of the firm ___

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Answer #1

a. The value of the firm will be the same as the value of current total value of $ 49.4 million

b. The value of the firm will be

= $ 49.4 million + $ 19.6 million x 22%

= $ 54 million approximately

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