Question

Milton Industries expects free cash flows of $11 million each year. Milton's corporate tax rate is 22%, and its unlevered cost of capital is 14%. Milton also has outstanding debt of $21.85 million, and it expects to maintain this level of debt permanently. What is the value of Milton industries with leverage (in millions)

Answer 1

the value of Milton industries with leverage is $83.38 million

Step-by-step explanation:

The computation of the value of Milton industries with leverage is shown below:

= value of firm without leverage + Amount of debt x tax rate

= ($11 million ÷ 14%) + $21.85 million × 0.22

= $83.38 million

Hence, the value of Milton industries with leverage is $83.38 million

The same is to be considered and relevant