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The Ensyder Trading Company (ETC) is a zero growth firm with an EBIT of $250,000 and a corporate tax rate of 40%. ETC uses $1 million of debt financing and the cost of equity of an unlevered firm in the same risk class is 15%. The personal tax rates of ETC's investors are 30% on interest income and 20% (on average) on income from common stock.

a) What is the value of ETC according to MM with corporate taxes?

b) What is ETC's value (rounded to the nearest 1000) according to MM (including personal taxes)?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M940104

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