Business, 21.05.2020 15:57 heatherlemaster

Colt Systems will have EBIT this coming year of $ 15 million. It will also spend $ 6 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 21 % and a cost of capital of 10 %. a. If Colt's free cash flows are expected to grow by 8.5 % 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. The 2017 TCJA limited interest deductions to 30% of taxable income. How much can Colt borrow now to maximize its interest deduction under the new law? d. Is there a tax incentive today for Colt to choose a debt-to-value ratio that exceeds 25%? Explain.

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Colt Systems will have EBIT this coming year of $ 15 million. It will also spend $ 6 million on tota...

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