Millennium Motors has current pretax annual cash flows of $1,000 and is in the 35% tax bracket. The appropriate discount rate for its cash flows is 12%. Suppose the company issues a $1,500 bond and uses these proceeds to pay a one-time special dividend to shareholders. The cost of equity: What is its value without debt in the capital structure?

Question

Quizplus · Accepted Answer

The Answer of Millennium Motors has current pretax annual cash flows of $1,000 and is in the 35% tax bracket. The appropriate discount rate for its cash flows is 12%. Suppose the company issues a $1,500 bond and uses these proceeds to pay a one-time special dividend to shareholders. The cost of equity: What is its value without debt in the capital structure?

Millennium Motors Has Current Pretax Annual Cash Flows of $1,000