Recall Enterprises has no debt. its current total value is $90million. ignoring

Question

Recall Enterprises has no debt. its current total value is $90million. ignoring taxes, what will Recall's value be if it sells$30 million in debt? suppose now that Recall's tax rate is 40percent. what will its overall value be if it sells $30 million indebt? assume debt proceeds are used to repurchase equity. now my question is here: in the previous question, what is thedebt-equity ratio in both cases? Recall Enterprises has no debt. its current total value is $90million. ignoring taxes, what will Recall's value be if it sells$30 million in debt? suppose now that Recall's tax rate is 40percent. what will its overall value be if it sells $30 million indebt? assume debt proceeds are used to repurchase equity. now my question is here: in the previous question, what is thedebt-equity ratio in both cases?

Explanation / Answer

What I understand from above is that you want to calculate D/Eratio 1. When there is no debt. D/E ratio = 0 2. When Debt is 30M & Total Assets are 90M, Equity is (90-30) =60M So D/E ratio is 30/60 = 0.5

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