echcrunch has an equity cost of capital of 10%, a cost of debt is 6%, and a debt to value ratio (D/V ) of 50%. Techcrunch’s current EBIT is $100 million. Assume that the company is not expected to grow and pays out all of its earnings. Assume that capital expenditures are equal to depreciation and that there are no changes in net working capital. Before the Tax Cuts and Jobs Act of 2017, Techcrunch’s corporate tax rate was 35%. After the tax reform, Techcrunch’s tax rate is reduced to 21%. What is the firm value of Techcrunch after the tax reform? How much does the value of equity increases due to the reform?
echcrunch has an equity cost of capital of 10%, a cost of debt is 6%, and a debt to value ratio (D/V ) of 50%. Techcrunch’s current EBIT is $100 million. Assume that the company is not expected to grow and pays out all of its earnings. Assume that capital expenditures are equal to depreciation and that there are no changes in net working capital. Before the Tax Cuts and Jobs Act of 2017, Techcrunch’s corporate tax rate was 35%. After the tax reform, Techcrunch’s tax rate is reduced to 21%. What is the firm value of Techcrunch after the tax reform? How much does the value of equity increases due to the reform?
Chapter2: Financial Statements, Cash Flow, And Taxes
Section: Chapter Questions
Problem 1STP
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Techcrunch has an equity cost of capital of 10%, a cost of debt is 6%, and a debt to value ratio (D/V ) of 50%.
Techcrunch’s current EBIT is $100 million. Assume that the company is not expected to grow and pays out all of its earnings.
Assume that capital expenditures are equal to
Before the Tax Cuts and Jobs Act of 2017, Techcrunch’s corporate tax rate was 35%. After the tax reform, Techcrunch’s tax rate is reduced to 21%.
What is the firm value of Techcrunch after the tax reform? How much does the value of equity increases due to the reform?
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