MM with taxes - Sunshine Trading Company (STC) has an expected EBIT of $20,000 in...
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MM with taxes - Sunshine Trading Company (STC) has an expected EBIT of $20,000 in perpetuity, and a tax rate of 40%. Interest rate on STCs debt is 8%, and its WACC is 10%. Debt-equity ratio of STC is 0.6, or 3/5. Blackstone Inc (BI) an all-equity firm, which is identical to STC, except for the capital structure. For Qu1-4, do not use MM Proposition 2. Repeat: Do not use MM Proposition 2. What is the rate of return on STC shares?
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