Cruz Corporation has $50 billion of debt outstanding. An otherwise identical firm has no debt and...
Cruz Corporation has $50 billion of debt outstanding. An otherwise identical firm has no debt and has a market value of $250 billion. Under the Miller model, what is Cruz’s value if the federal-plus-state corporate tax rate is 28%, the effective personal tax rate on stock is 17%, and the personal tax rate on debt is 29%? Enter your answer in billions
Homework Answers
Value of unlevered firm(VU) = $250 billion
Value of levered firm = VU + debt * (1-(1-t)*(1-Ts)/(1-Td))
= 250 + 50 * (1-(1-0.28)*(1-0.17)/(1-0.29)
= $257.92 billion
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