Problem: This is an M&M world with corporate taxes. Sci-fi is originally all equity financed (unlevered). All earnings are paid out as dividends, and the growth rate is zero. The firm decides to issue $8,000,000 in debt at 6% and to use the proceeds to repurchase stock. The capital structure change is permanent (so debt is perpetual). Fill in all of the missing information in the table below.
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Unlevered
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Levered
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EBIT
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7,500,000
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7,500,000
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INTEREST
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EBT
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Taxes (40%)
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Net Income
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#Shares
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1,000,000
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EPS
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Unlevered return
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10%
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10%
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Return on Equity rS
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Price
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Firm Value (V)
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WACC
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