As a Consultant to First Responder Inc

question 86

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 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

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Definitions:

Competitive Advantages

The attributes that allow an organization to outperform its competitors, including cost structure, product offerings, brand, and customer service.

Sustainable Competitive Advantage

A long-term, defendable position a company holds over competitors, often through unique resources, capabilities, or technologies.

Transferable

Referring to skills, knowledge, or qualities that can be applied in different roles or contexts.

Tangible

Something that is capable of being touched or perceived through the sense of touch; concrete rather than conceptual.