Remex? (RMX) currently has no debt in its capital structure. The beta of its equity is 1.86.
For each year into the indefinite? future, Remex's free cash flow is expected to equal 25 million. Remex is considering changing its capital structure by issuing debt and using the proceeds to buy back stock. It will do so in such a way that it will have a 31?% ?debt-equity ratio after the? change, and it will maintain this? debt-equity ratio forever. Assume that? Remex's debt cost of capital will be 6.11%.
Remex faces a corporate tax rate of 25?%.
Except for the corporate tax rate of 25?%,
there are no market imperfections. Assume that the CAPM? holds, the? risk-free rate of interest is 4.74.7?%, and the expected return on the market is 10.3410.34?%.
a. Using the information? provided, fill in the table below.
b. Using the information provided and your calculations in part
?(a?) determine the value of the tax shield acquired by Remex if it changes its capital structure in the way it is considering.