Walkrun Inc. is unlevered and has a value of $800 billion. An otherwise identical but levered...
Walkrun Inc. is unlevered and has a value of $800 billion. An otherwise identical but levered firm finances 40% of its capital structure with debt at a 6% interest rate. No growth is expected. Assume the corporate tax rate is 25%. Use the MM model with corporate taxes to determine the value of the levered firm. Enter your answer in billions. For example, an answer of $1 billion should be entered as 1, not 1,000,000,000. Round your answer to the nearest whole number.
Homework Answers
Value of levered firm:
= Value of unlevered firm + Debt×Tax rate
= $800+$800×40%×25%
= $800+$80
= $880
Hence, Value of levered firm is $880 billion
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