Cch inc has no debt in its capital structure there are 100, Ask an Expert

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CCH, Inc. has no debt in its capital structure. There are 100 million shares outstanding and the price per share is $30. The company is considering a debt-for-equity swap where they will issue $1 billion in debt at a 6% coupon rate (YTM = 6%) and use the proceeds to buy back stock (at $30 per share). Calculate the following:

A) If there are no taxes, what is the value of the firm without tax if after the debt-for-equity swap is completed? Show your calculation

B) If there are taxes that apply at a 35% rate, what is the value of the firm after the debt is issued? Show your calculation

C) If the firm issued more debt so that its debt/equity ratio was 10, what would be the value of the firm (including taxes but ignoring bankruptcy costs)? Show your calculation

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Financial Management, Finance

Category:- Financial Management
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