1 johnson tire distributors has an unlevered cost of, Ask an Expert

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1. Johnson Tire Distributors has an unlevered cost of capital of 12 percent, a tax rate of 35 percent, and expected earnings before interest and taxes of $1,400. The company has $2,700 in bonds outstanding that have a 6 percent coupon and pay interest annually. The bonds are selling at par value. What is the cost of equity?

2. The Lanoi Company has EBIT of $30,000 and market value debt of $150,000 outstanding with an 8% coupon rate. The cost of equity for an all equity firm would be 12%. Aggie has a 30% corporate tax rate. Investors face a 20% tax rate on debt receipts and a 12% rate on equity. Determine the value of Aggie.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91774850

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