Ignoring taxes, what will the company’s value be if it sells $16 million in debt
ID: 2715925 • Letter: I
Question
Ignoring taxes, what will the company’s value be if it sells $16 million in debt? Assume debt proceeds are used to repurchase equity. (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).)
Suppose now that the company’s tax rate is 40 percent. Assume debt proceeds are used to repurchase equity. What will its overall value be if it sells $16 million in debt? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).)
Value of the firm
Neal Enterprises has no debt. Its current total value is $45 million.Explanation / Answer
Value of firm = 45000000 Value of firm = 45000000 + 0.40 (16000000) = 51400000