Author Question: Reefer Trucking Inc. is expected to generate EBIT of $3 million annually in perpetuity (starting in ... (Read 46 times)

xclash · **on:** Apr 25, 2021

Question 1

Reefer Trucking Inc. is an all equity firm that generates EBIT of $3 million annually in perpetuity (starting in one year). Reefer shareholders require a return of 11%, and the corporate tax rate is 35%. What is the market value of Reefer Trucking?
◦ $12.19M
◦ $17.73M
◦ $23.52M
◦ $27.27M

Question 2

Reefer Trucking Inc. is expected to generate EBIT of $3 million annually in perpetuity (starting in one year). Reefer is all equity financed and shareholders require a return of 11%. The corporate tax rate is 35%. Reefer is proposing to issue $4 million of perpetual bonds with an annual coupon of 9%. Assume the debt is used to repurchase stock and that Reefer never borrows more or repays its debts. What is the market value of Reefer Trucking after the new debt issue?
◦ $17.73M
◦ $19.13M
◦ $21.73M
◦ $28.67M

shayla · **Reply #1 on:** Apr 25, 2021

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