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Schwarzentraub Industries' expected free cash flow for the year is $500,000 in the future free cash flow is expected to grow at a rate of 9%. The company currently has no debt, and its cost of equity is 13%. Its tax rate is 40%.
a. Find Vu
b. Find VL and rsL is Schwarzentraub uses $5 million in debt with a cost of 7%. Use the extension of the MM model that allows for growth.
c. Based on Vu from part a, find VL and rsL,using the MM model (with taxes) if Schwarzentraub uses $5 million in 7% debt.
d. Explain the difference between your answers to parts b and c.

Reference no: EM1349319

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