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Schwarzentraub Industries' expected free cash flow for the year is $500,000; in the future, free cash flow is expected to grow at t a rate of 9%.
Schwarzentraub Industries’ expected free cash flow for the year is $500,000; in the future, free cash flow is expected to grow at t a rate of 9%. The company currently has no debt, and its cost of equity is 13%. Its tax rate is 40%. a. Find Vu.b. Find VL and rsL if Schwarzentraub uses $5 million in debt with a cost of 7%.c. Use the extension of the MM model that allows for growth.d. Based on Vu from part a, find VL and rsL using the MM model (with taxes) if Schwarzentraub uses $5 million in 7% debt.e. Explain the difference between your answers to parts b and c.
