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# 2 Firms A and B are identical in their business activity. Both have following annual data: EBITDA5,000.00; Depreciation=1,000.00; TAX=20% ; ΔOWC=0 and CAPEX=1,000.00Firm A has no debt; Firm B...

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2 Firms A and B are identical in their business activity. Both have following annual data: EBITDA5,000.00; Depreciation=1,000.00; TAX=20% ; ΔOWC=0 and CAPEX=1,000.00Firm A has no debt; Firm B carries \$30,000 debt with 10% annual coupon. Both firms pay out all cash left after paying all business payments and taxes.Which firm pays more to its stakeholders (i.e., bond and stockholders) and if firm B pays out more, then why?Assume that these firms operate in perpetuity and calculate their enterprise value (i.e., value of stocks and bonds combined). Make an argument for use of NOPAT.
Answered 1 days AfterMar 04, 2022

## Solution

Rochak answered on Mar 06 2022
Firm A Pay-out:
Particulars
Amount
EBITDA
5,000
Less: Depreciation
1,000
EBIT
4,000
Less: Taxes (20%)
800
Net Income
3,200
1,000
Less: CAPEX
1,000
OWC
-
Free Cash Flow
3,200
Firm B Pay-out:
Particulars
Amount
EBITDA
5,000
Less:...
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