Question

Quillpen Company is unlevered and has a value of $40 billion. An otherwise identical but levered firm finances 20% of its capital structure with debt. Under the MM zero-tax model, what is the value of the levered firm? Enter your answer in billions. For example, an answer of $1 billion should be entered as 1, not 1,000,000,000. Round your answer to the nearest whole number.

Answer #1

_______________________________

_______________________________

Value of Unlevered Firm = 40 bn

Value of Debt in Unlevered Firm = 40 bn * Debt Weight / Total WEight

= 40 bn * 20%

= 8 bn

Value of Levered Firm = value of unleverd Firm + value of Debt * Tax Rates

= 40 bn + 8 bn * 0%

= 40 bn

Value will be same as unlevered Firm.

**NOTE: The
answer to your question has been given below/above. If there is any
query regarding the answer, please ask in the comment section. If
you find the answer helpful, do upvote. Help us help
you.**

An unlevered firm has a value of $800 million. An otherwise
identical but levered firm has $40 million in debt at a 4% interest
rate. Its cost of debt is 4% and its unlevered cost of equity is
12%. After Year 1, free cash flows and tax savings are expected to
grow at a constant rate of 3%. Assuming the corporate tax rate is
40%, use the compressed adjusted present value model to determine
the value of the levered firm....

An unlevered firm has a value of $750 million. An otherwise
identical but levered firm has $40 million in debt at a 6% interest
rate. Its cost of debt is 6% and its unlevered cost of equity is
10%. After Year 1, free cash flows and tax savings are expected to
grow at a constant rate of 3%. Assuming the corporate tax rate is
40%, use the compressed adjusted present value model to determine
the value of the levered firm....

An unlevered firm has a value of $700 million. An otherwise
identical but levered firm has $40 million in debt at a 6% interest
rate. Its cost of debt is 6% and its unlevered cost of equity is
10%. After Year 1, free cash flows and tax savings are expected to
grow at a constant rate of 2%. Assuming the corporate tax rate is
35%, use the compressed adjusted present value model to determine
the value of the levered firm....

MM Model with Corporate Taxes
An unlevered firm has a value of $700 million. An otherwise
identical but levered firm has $140 million in debt at a 4%
interest rate. Its cost of debt is 4% and its unlevered cost of
equity is 11%. No growth is expected. Assuming the corporate tax
rate is 35%, use the MM model with corporate taxes to determine the
value of the levered firm. Enter your answer in millions. For
example, an answer of...

Mill Co. is all equity financed and has value of $600
billion.
Otherwise identical but levered firm with 30% debt at 6%
interest rate. No growth is expected.
Please using mm with corporate tax model to determine the value
of a levered firm assuming tax rate of 25.
1) $700 billion
2)$600 billion
3) $645 billion
4) $852 billion
5) Not enough information

Cruz Corporation has $100 billion of debt outstanding. An
otherwise identical firm has no debt and has a market value of $650
billion. Under the Miller model, what is Cruz’s value if the
federal-plus-state corporate tax rate is 28%, the effective
personal tax rate on stock is 17%, and the personal tax rate on
debt is 29%? Enter your answer in billions. For example, an answer
of $1.23 billion should be entered as 1.23, not 1,230,000,000.
Round your answer to...

Problem 21-03
Compressed APV Model with Constant Growth
An unlevered firm has a value of $850 million. An otherwise
identical but levered firm has $80 million in debt at a 7% interest
rate. Its cost of debt is 7% and its unlevered cost of equity is
11%. After Year 1, free cash flows and tax savings are expected to
grow at a constant rate of 4%. Assuming the corporate tax rate is
40%, use the compressed adjusted present value model...

Compressed APV Model with Constant Growth
An unlevered firm has a value of $700 million. An otherwise
identical but levered firm has $70 million in debt at a 6% interest
rate. Its cost of debt is 6% and its unlevered cost of equity is
12%. After Year 1, free cash flows and tax savings are expected to
grow at a constant rate of 2%. Assuming the corporate tax rate is
35%, use the compressed adjusted present value model to determine...

Miller Model with Corporate and Personal Taxes Cruz Corporation
has $150 billion of debt outstanding. An otherwise identical firm
has no debt and has a market value of $500 billion. Under the
Miller model, what is Cruz’s value if the federal-plus-state
corporate tax rate is 28%, the effective personal tax rate on stock
is 17%, and the personal tax rate on debt is 29%? Enter your answer
in billions. For example, an answer of $1.23 billion should be
entered as...

Arnold Co. has $200 billion of debt outstanding. An otherwise
identical firm has no debt and has a market value of $700 billion.
Under the Miller model, what is Arnold’s value if the
federal-plus-state corporate tax rate is 25%, the effective
personal tax rate on stock is 20%, and the personal tax rate on
debt is 30%?

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 1 minute ago

asked 13 minutes ago

asked 59 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago