question archive The SCI company has been fully financed by shareholders' equity (equity) for several years
The SCI company has been fully financed by shareholders' equity (equity) for several years
Subject:AccountingPrice: Bought3
The SCI company has been fully financed by shareholders' equity (equity)
for several years. Its annual profit before interest and tax (EBIT) is constant. It amounts to $ 5,000,000 and is a life sentence. SCI distributes all its profits in dividends. Its profit tax rate is 40%. In addition, it is assumed that the company can borrow (get into debt) at a rate of 10%, as much as necessary to replace all or part of the shareholders' equity, without incurring an increase in the cost of debt. The cost of capital without leverage (debt free) UK is 12%. What is the NAV value of the SCI company if it borrows $ 10,000,000 to replace the same amount of shareholders' equity?
