Question

# Milton Industries expects free cash flows of \$ 4 million each year.​ Milton's corporate tax rate...

Milton Industries expects free cash flows of \$ 4 million each year.​ Milton's corporate tax rate is 30 % and its unlevered cost of capital is 13 % Milton also has outstanding debt of \$ 8.77 ​million, and it expects to maintain this level of debt permanently. a. What is the value of Milton Industries without​ leverage? to two decimal point b. What is the value of Milton Industries with​ leverage? to decimal point

Expected FCF = \$4.00 million
Unlevered Cost of Capital = 13.00%

Value of Unlevered Firm = Expected FCF / Unlevered Cost of Capital
Value of Unlevered Firm = \$4.00 million / 0.13
Value of Unlevered Firm = \$30.77 million

Value of Debt = \$8.77 million
Tax Rate = 30%

Value of Levered Firm = Value of Unlevered Firm + Value of Debt * Tax Rate
Value of Levered Firm = \$30.77 million + \$8.77 million * 0.30
Value of Levered Firm = \$30.77 million + \$2.63 million
Value of Levered Firm = \$33.40 million

#### Earn Coins

Coins can be redeemed for fabulous gifts.