a company will generate forever a before-tax cash flow of $15. the corporate tax rate is...
a company will generate forever a before-tax cash flow of $15. the corporate tax rate is 50%. the risk-free rate is 10%.
Value the firm if it issues a perpetual bond with coupon $5.
Homework Answers
| EBIT | 15 | ||
| less Interest | 5 | ||
| EBT | 10 | ||
| less taxes-50% | 5 | ||
| EAT | 5 | ||
| NOPAT | EBIT-tax | 15-5 | 10 |
| value of Firm | NOPAT/ risk free rate | 10/10% | 100 |
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