As a Consultant to First Responder Inc

question 16

Multiple Choice

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 80.0% 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 9.0%.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) $7,143
• B) $8,000
• C) $7,357
• D) $5,357
• E) $5,929

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Definitions:

Inequality

A mathematical statement indicating that two expressions are not equal, typically involving symbols such as > (greater than), < (less than).

Graph

A diagram representing a system of connections or interrelations among two or more things by a number of distinctive dots, lines, bars, etc.

Inequality

A mathematical statement indicating that two expressions are not equal, using symbols such as >, <, ≥, or ≤.

Solution

The result of solving a problem or equation, providing a value or set of values that satisfy the conditions expressed.