How much can colt borrow now

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Colt Systems will have EBIT this coming year of $15 million. It will also spend $6 million on total capital expenditures and increases in net working? capital, and have $3 million in depreciation expenses. Colt is currently an? all-equity firm with a corporate tax rate of 35% and a cost of capital of 10%.

Problem a. If? Colt's free cash flows are expected to grow by 8.5% per? year, what is the market value of its equity? today?

Problem b. If the interest rate on its debt is 8%?, how much can Colt borrow now and still have? non-negative net income this coming? year?

Problem c. Is there a tax incentive today for Colt to choose a? debt-to-value ratio that exceeds 50%?? Explain.

Reference no: EM132883155

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