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1)Use the information for the question(s) below
1)Use the information for the question(s) below. Shepard Industries expects free cash flow of $10 million each year. Shepard's corporate tax rate is 21%, and its unlevered cost of equity is 10%. The firm also has outstanding debt of $40 million and it expects to maintain amount of debt permanently. 17) 17) The value of Shepard Industries with leverage is closest to: A) $100 million. B) $135 million. C) $108.4 million. D) $64 million.
2)
2019 Balance sheet for company XYZ
|
Cash |
3820 |
Accounts payable |
13610 |
|
Receivables |
9140 |
Long-term debt |
32950 |
|
Inventory |
20390 |
Common stock |
7500 |
|
Net fixed assets |
51610 |
Retained earnings |
30900 |
|
Total assets |
84960 |
Total Liab. & Equity |
84960 |
If the firm XYZ purchases inventory using cash that worth $1000 , what will be the Total assets after this transaction?
Expert Solution
Nothing complexity,
Value of levered firm= Value of unleveres + (Tax rate *Debt)
= Freecashflow/cost of equity + (debt*tax rate)
=(10/0.1) + (40*21%)
VALUE OF LEVERED FIRM= 108.4
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