What is the market value of Barings, a firm with total assets of $100 million and...
What is the market value of Barings, a firm with total assets of $100 million and $30 million in perpetual debt in its capital structure? Barings’ cost of equity is 15% and its cost of debt is 10%. Expected perpetual net operating income (EBIT) will be $17 million and the marginal tax rate is 40%.
| $86.0 million |
| $92.7 million |
| $104.0 million |
| $98.0 million |
Homework Answers
A. $86.0 million
Income available to stockholders = ($17,000,000 - $3,000,000)(1 - 0.40) = $8,400,000
Value = ($8,400,000/0.15) + ($3,000,000/0.10) = $86,000,000
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