P13 -21 Agency Costs and Capital Structure Galaxy Enterprises has earnings before interest and taxes of $9 million of debt outstanding with a required rate of return of 7.3 %. The required rate of return on assets in the industry is 12%. The corporate tax rate is 21 %, but there are no personal taxes. The present value of Galaxy's bankruptcy costs is $18 million. Compute Galaxy's firm value. Please show all the steps of how you get to the answer.

P13 -21 Agency Costs and Capital Structure Galaxy Enterprises has earnings before interest and taxes of $9 million of debt outstanding with a required rate of return of 7.3 %. The required rate of return on assets in the industry is 12%. The corporate tax rate is 21 %, but there are no personal taxes. The present value of Galaxy's bankruptcy costs is $18 million. Compute Galaxy's firm value. Please show all the steps of how you get to the answer.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter13: Capital Structure Concepts

Section: Chapter Questions

Problem 6P

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