What is the value of milton industries without leverage

Reference no: EM132451190

Question 1: Grommit Engineering expects to have net income next year of $20.75 million and free cash flow of $22.15 million. Grommits marginal corporate tax rate is 35%.

a. If Grommit increases leverage so that its interest expense rises by $1 million, how will its net income change?

b. For the same increase in interest expense, how will free cash flow change?

Question 2: Your firm currently has $100 million in debt outstanding with a 10% interest rate. The terms of the loan require the firm to repay $25 million of the balance each year. Suppose that the marginal corporate tax rate 40% and that the interest tax shields have the same risks as the loan. What is the present value of the interest tax shields from this debt?

Question 3: Milton Industries expects free cash flow of $5 million each year. Miltons corporate tax rate is 35%, and its unlevered cost of capital is 15%. The firm also has outstanding debt of $19.05 million and it expects to maintain this level of debt permanently.

a. What is the value of Milton Industries without leverage?

b. What is the value of Milton's industries with leverage?

Question 4: With its current leverage, Impi Corporation will have net income next year of $4.5 million. If Impi's corporate tax rate is 35% and it pays 8% interest on its debt, how much additional debt can Impi issue this year and still receive the benefit of the interest tax shield next year?

Reference no: EM132451190

Questions Cloud

Nurses and organizational cultures and values : Prepare a 10-minute presentation (10-15 slides, not including title or reference slide) on organizational culture and values.

Key elements of certified electronic health records : Discuss 2 key elements of certified EHRs, and discuss stage 1 meaningful use core objectives criteria as they relate to clinical applications.

At what reorder point should mr cue reorder ivory : If Mr. Cue were to order 1000 kilograms (instead of EOQ) of ivory at a time, what would be the length of the cycle between orders?

Charge of leading the new data-driven quality improvement : You are the manager in charge of leading the new data-driven quality improvement initiative in preparation for a Joint Commission (TJC) accreditation.

What is the value of milton industries without leverage : If Grommit increases leverage so that its interest expense rises by $1 million, how will its net income change?What is the value of Milton Industries

Example of a multivariate procedure : An example of a multivariate procedure is analysis of covariance (ANCOVA). Explain what is meant by the following statement: ANCOVA offers post

Linux-based system forensics software tool : Use the Internet or the Strayer Library to research at least one commonly used Linux-based system forensics software tool.

What controls are missing and what could be done to prevent : If a substitute's check was for $1,200, the person would cash the check, keep $200 and pay Art $1,000. What controls are missing and what could done to prevent

Application of nursing theory to practice : You are a professional nurse caring for Mr. R, a 58-year-old patient who recently underwent surgery for colon cancer resulting in a temporary colostomy.

User Account

All Pages