As a consultant to First Responder Inc. ,you have obtained the following data (dollars in millions).The company plans to pay out all of its earnings as dividends,hence g = 0.Also,no net new investment in operating capital is needed because growth is zero.The CFO believes that a move from zero debt to 20.0% debt would cause the cost of equity to increase from 10.0% to 12.0%,and the interest rate on the new debt would be 8.0%.What would the firm's total market value be if it makes this change? Hints: Find the FCF,which is equal to NOPAT = EBIT(1 - T)because no new operating capital is needed,and then divide by (WACC - g).Do not round your intermediate calculations.

A) $4,444
B) $4,400
C) $5,111
D) $3,733
E) $4,667

Question

As a consultant to First Responder Inc. ,you have obtained the following data (dollars in millions) .The company plans to pay out all of its earnings as dividends,hence g = 0.Also,no net new investment in operating capital is needed because growth is zero.The CFO believes that a move from zero debt to 20.0% debt would cause the cost of equity to increase from 10.0% to 12.0%,and the interest rate on the new debt would be 8.0%.What would the firm's total market value be if it makes this change? Hints: Find the FCF,which is equal to NOPAT = EBIT(1 - T) because no new operating capital is needed,and then divide by (WACC - g) .Do not round your intermediate calculations.

A) $4,444 
B) $4,400 
C) $5,111 
D) $3,733 
E) $4,667

Quizplus · Accepted Answer

The Answer of As a consultant to First Responder Inc. ,you have obtained the following data (dollars in millions).The company plans to pay out all of its earnings as dividends,hence g = 0.Also,no net new investment in operating capital is needed because growth is zero.The CFO believes that a move from zero debt to 20.0% debt would cause the cost of equity to increase from 10.0% to 12.0%,and the interest rate on the new debt would be 8.0%.What would the firm's total market value be if it makes this change? Hints: Find the FCF,which is equal to NOPAT = EBIT(1 - T)because no new operating capital is needed,and then divide by (WACC - g).Do not round your intermediate calculations. ​

A) $4,444 
B) $4,400 
C) $5,111 
D) $3,733 
E) $4,667

As a Consultant to First Responder Inc