Debt and an equity cost of capital

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Reference no: EM131579186

Gartner Systems has no debt and an equity cost of capital of 9.5%. Gartner's current market capitalization is $ 99 million, and its free cash flows are expected to grow at 2.9 % per year.? Gartner's corporate tax rate is 38 % Investors pay tax rates of 36 % on interest income and 19% on equity income.

a. Suppose Gartner adds $ 50 million in permanent debt and uses the proceeds to repurchase shares. What will? Gartner's levered value be in this? case?

b. Suppose instead Gartner decides to maintain a 50 % debt-to-value ratio going forward. If? Gartner's debt cost of capital is 6.06 % what will? Gartner's levered value be in this? case?

Hint?:Make sure to round all intermediate calculations to at least four decimal places.

Reference no: EM131579186

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