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Minimal Taxis expects free cash flows in the coming year of $46 million. Its free...

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Finance

Minimal Taxis expects free cash flows in the coming year of $46 million. Its free cash flow is expected to grow at a rate of 3.8% per year thereafter. Minimal has an equity cost of capital of 12% and a debt cost of capital of 4.5%. It has a corporate tax rate of 22%. a. If Minimal maintains a debt/equity ratio of 0.6, what is the value of its interest tax shield?

b. If Wonderful maintains a debt/equity ratio of 0.6, what is the pre-tax WACC?

c. If Minimal maintains a debt/equity ratio of 0.6, what is the value of the firm without leverage?

d. If Wonderful maintains a debt/equity ratio of 0.6, what is the WACC with taxes?

e. If Wonderful maintains a debt/equity ratio of 0.6, what is the value of the levered firm?

f. If Wonderful targets a debt/equity ratio of 0.7, how would WACC change?

g. If Wonderful targets a debt/equity ratio of 0.7, how would the value of the equity change?

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