3. As a consultant to First Responder Inc., you have obtained the following data (dollars...
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3. As a consultant to First Responder Inc., you have obtained the following data (dollars in millions). The company plans to pay out all of its earnings as dividends, hence g = 0. Also, no net new investment in operating capital is needed because growth is zero. The CFO believes that a move from zero debt to 35,0% debt would cause the cost of equity to increase from 10.0% to 13.0%, and the interest rate on the new debt would be 8.0%. What would the firm's total market value be if it makes this change? Hints: Find the FCF, which is equal to NOPAT - EBIT(1 - T) because no new operating capital is needed, and then divide by (WACC-g). Do not round your intermediate calculations. Oper income (EBIT) $800 Tax rate 40.0% New cost of equity (rs) 13.00% 35.0% Interest rate (rd) 8.00% New Wd a. $5,497 b. $4,833 c. $4,738 d. $5,686 e. $4.407
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