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ar Colfs tree cash fows are expected to grow by 8.% per year, what is the market value of s equity loday? Colfs tree cash fows are expected to grow by 8% per year, the market value milion Round to one decimal place) ihe interest rate on its debt is 10% how much can Colt borow now and s have non-negative net income this coming year? the interest rate on s debt is 10%, Colt can bomowS on Round to one decimal place.) eis there atax incendive today for Colt to choose a debtovalue ratio that exceeds 70%? Explain (Select the best choice below)

ar Colfs tree cash fows are expected to grow by 8.% per year, what is the market value of s equity loday? Colfs tree cash fows are expected to grow by 8% per year, the market value milion Round to one decimal place) ihe interest rate on its debt is 10% how much can Colt borow now and s have non-negative net income this coming year? the interest rate on s debt is 10%, Colt can bomowS on Round to one decimal place.) eis there atax incendive today for Colt to choose a debtovalue ratio that exceeds 70%? Explain (Select the best choice below)

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 24P
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Colt Systems will have EBIT this coming year of $22 million. It wil also spend $6 million on total capital expenditures and increases in net working capital, and have $3 million in depreciation expenses. Colt is currently an all-equity firm with a corporate tax rate of 30% and a cost of capital of 12% puaif Colf's tree cash fows are expected to grow by 8.6% per year, what is the market value of its equity today? b. If the interest rate on its debt is 10%, how much can Colt borrow now and sti have non-negative net income this coming year? e is there a tax incentive today for Colt to choose a deb-to-value ratio that exceeds 70%? Explain. 10 a If Colt's tree cash fows are expected to grow by 8.6% per year, what is the market value of ita equity today? It Colfs free cash fows are expected to grow by 8.6% per year, the market value is smilion. (Round to one decimal place.) HV b.If the interest rate on its debt is 10%. how much can Colt borrow now and still have non-negative net income this coming year? the interest rate on its debt is 10%, Cot can borow Smilion. (Round to one decimal place.) e is there a tax incentive today for Colt to choose a debt-to-value ratio that exceeds 70%? Explain. (Select the best choice below) 1o incom OA No, because they could borrow $301 million, which would give the firm a debt-to-value ratio of 70% HV OB Yes, because they can bomow $301 million and use the interest tax shield. OC. No, because the most they should borrow is $220.0 millon, which would give the firm a debe-to-value ratio of 603%. So, there is no tax incentive to choose a Qu ratio above this OD. Yes, because the firm can always use the interest tax shield from borrowing of 1of
Transcribed Image Text:Colt Systems will have EBIT this coming year of $22 million. It wil also spend $6 million on total capital expenditures and increases in net working capital, and have $3 million in depreciation expenses. Colt is currently an all-equity firm with a corporate tax rate of 30% and a cost of capital of 12% puaif Colf's tree cash fows are expected to grow by 8.6% per year, what is the market value of its equity today? b. If the interest rate on its debt is 10%, how much can Colt borrow now and sti have non-negative net income this coming year? e is there a tax incentive today for Colt to choose a deb-to-value ratio that exceeds 70%? Explain. 10 a If Colt's tree cash fows are expected to grow by 8.6% per year, what is the market value of ita equity today? It Colfs free cash fows are expected to grow by 8.6% per year, the market value is smilion. (Round to one decimal place.) HV b.If the interest rate on its debt is 10%. how much can Colt borrow now and still have non-negative net income this coming year? the interest rate on its debt is 10%, Cot can borow Smilion. (Round to one decimal place.) e is there a tax incentive today for Colt to choose a debt-to-value ratio that exceeds 70%? Explain. (Select the best choice below) 1o incom OA No, because they could borrow $301 million, which would give the firm a debt-to-value ratio of 70% HV OB Yes, because they can bomow $301 million and use the interest tax shield. OC. No, because the most they should borrow is $220.0 millon, which would give the firm a debe-to-value ratio of 603%. So, there is no tax incentive to choose a Qu ratio above this OD. Yes, because the firm can always use the interest tax shield from borrowing of 1of
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