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Unformatted text preview: $75.00 E. $85.00 25. Your company has collected the following information: Item Value Total Assets (BV) $3,000 million Operating Income (EBIT) $800 million Interest Expense $0 Net Income $480 million Share Price (MV Common) $32.00 Tax Rate 40% Debt Ratio 0% WACC 10% EPS = DPS $3.20 The company has no growth opportunities (g = 0), so the company pays out all of its earnings as dividends (EPS = DPS) and expects to make no additional investment in net operating working capital or gross fixed assets and has zero depreciation expense (you should now be able to calculate FCF). A consultant believes that if the company moves to a capital structure financed with 20 percent debt and 80 percent equity (based on market values) that the cost of equity will increase to 11 percent and that the pretax cost of debt will be 8 percent (you should now be able to calculate WACC)....
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 Spring '08
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 Debt, Leverage

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