Question

questions 22 based upon the following information: УХ has an annual pepetual expected cash flow of $7 million. All of this income is paid ato investors. The required return on the assets is 18%. Q22. If Company X is an all-equity firm and there are no taxes, then the value of Company X is closest to a $23 million b. $25 million c. $36 million d. $39 million Answer questions 23 based upon the following information: Company Y has an annual perpetual expected cash flow of $7 million. All of this income is paid out to investors. Company Y's corporate tax rate is 35%, and the personal tax rate on equity income is 10%. The required return on the assets is 18%. Q23. If Company Y is an all-equity firm, then the value of Company Y is closest to a $23 million b. $25 million c. $36 million d. $39 million Answer questions 24 based upon the following information: Company Z has an annual perpetual expected cash flow of $7 million. All of this income is paid out to investors. Company Z's corporate tax rate is 35%, and the personal tax rate on equity income is 10%. Company Z pays an annual si million interest on its bonds. Bondholders require an after tax rate of 7% on these bonds. The personal tax rate on debt income is 30% with this amount of!everage, the required after-tax return on equity increases to 24%. The value of Company Z is closest to 0 24. $23 million $25 million a. b. c. $36 million $39 million

Answer 1

Option-(d): $39 million Firm's value today = Present value of Perpetual dividends-Annual perpetual dividend/ Required returnate $7 million 18% Annual perpetual dividend Required return rate Firm's value today 59-million [$7 / 18%-$7 / 0.18-$38.89-rounded off to zero decimal place as S31