Colt systems will have ebit this coming year of 17 million, Ask an Expert

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Colt Systems will have EBIT this coming year of $ 17 million. It will also spend $7 million on total capital expenditures and increases in net working capital, and have $3 million in depreciation expenses. Colt is currently an all-equity firm with a corporate tax rate of 35% and a cost of capital of 10%. a. If Colt's free cash flows are expected to grow by 8.7% per year, what is the market value of its equity today? b. If the interest rate on its debt is 8%, how much can Colt borrow now and still have non-negative net income this coming year? c. Is there a tax incentive today for Colt to choose a debt-to-value ratio that exceeds 49%? Explain.

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Financial Management, Finance

Category:- Financial Management
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