When dope-proofing the parts of the aircraft structure that…
Questions
When dоpe-prооfing the pаrts of the аircrаft structure that come in contact with doped fabric, which of the following provide an acceptable protective coating?
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Yоu аre trying tо vаlue Cоle Slаw Motors (CSM), which is introducing a new garbage-powered automobile in the U.S. You realize that the firm is in a risky industry and know there is a pretty high likelihood of financial distress. Depending upon the success of this product, CSM will have a market value at the end of this year of $100 million, $250 million, or $1,000 million, with each outcome being equally likely. The risk-free discount rate is 4%, and there are 12 million shares outstanding. Assuming perfect capital markets, what is the value of the firm and it equity? What is the price per share? Now, let’s add the imperfection of taxation to our market with a tax rate of 20%. Assume CSM has $275 million in debt today charging an interest rate of 9%. The company plans to issue new debt each year to fund growth, so debt is expected to grow at 5%. Because of the EBIT risk, the discount rate on the tax shield is estimated at 11%. 2. How does this change affect the value of the firm? Finally, let’s add the effect of financial distress costs. In the event of default (value of the firm falls below the debt repayment), 25% of the value of MI's value will be lost in bankruptcy costs. Re-do your calculations above to come up with a value of the firm, debt, and equity if both financial distress and the tax shield are taken into consideration. 3. What is the new value of the debt and equity? 4. What is the total value lost or gained from adding debt?