Suppose that Corporation is to consider a new project that requires $0.8 million finance with the interest rate of 10% and is expected to generate additional cash flow of $120,000 each year. In terms of financing, the firm is to borrow the money from David Lee, the owner of the firm. Assuming the cost of capital for all equity firm is 10%, compute the value of this firm if the corporate tax of 50% is imposed.

Suppose that Corporation is to consider a new project that requires $0.8 million finance with the interest rate of 10% and is expected to generate additional cash flow of $120,000 each year. In terms of financing, the firm is to borrow the money from David Lee, the owner of the firm. Assuming the cost of capital for all equity firm is 10%, compute the value of this firm if the corporate tax of 50% is imposed.

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter21: Dynamic Capital Structures And Corporate Valuation

Section: Chapter Questions

Problem 9P

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