To calculate the new value of Bega Barley Corp after the restructure, we need to consider the tax shield provided by the debt. The tax shield is the reduction in income taxes that a company is able to achieve as a result of the tax deductibility of interest payments.

Here are the steps to calculate the new firm value:

1. Calculate the annual interest expense: This is done by multiplying the debt amount by the yield to maturity. Since the yield is compounding semi-annually, we need to divide the yield by 2 and then multiply it by the debt amount twice.

Interest expense = $1.1 million * 4.45% / 2 * 2 = $48,950

2. Calculate the tax shield: This is done by multiplying the interest expense by the corporate tax rate.

Tax shield = $48,950 * 30% = $14,685

3. Calculate the present value of the tax shield: Since the tax shield is a perpetuity (it continues indefinitely), we can calculate its present value by dividing the tax shield by the yield to maturity. Again, since the yield is compounding semi-annually, we need to divide the yield by 2.

Present value of tax shield = $14,685 / (4.45% / 2) = $659,887.64

4. Calculate the new firm value: This is done by adding the present value of the tax shield to the original firm value.

New firm value = $3.75 million + $659,887.64 = $4.41 million

So, the value of Bega Barley Corp after the restructure will be approximately $4.41 million.

Question

To calculate the new value of Bega Barley Corp after the restructure, we need to consider the tax shield provided by the debt. The tax shield is the reduction in income taxes that a company is able to achieve as a result of the tax deductibility of interest payments.

Here are the steps to calculate the new firm value:

1. Calculate the annual interest expense: This is done by multiplying the debt amount by the yield to maturity. Since the yield is compounding semi-annually, we need to divide the yield by 2 and then multiply it by the debt amount twice.

Interest expense = $1.1 million * 4.45% / 2 * 2 = $48,950

2. Calculate the tax shield: This is done by multiplying the interest expense by the corporate tax rate.

Tax shield = $48,950 * 30% = $14,685

3. Calculate the present value of the tax shield: Since the tax shield is a perpetuity (it continues indefinitely), we can calculate its present value by dividing the tax shield by the yield to maturity. Again, since the yield is compounding semi-annually, we need to divide the yield by 2.

Present value of tax shield = $14,685 / (4.45% / 2) = $659,887.64

4. Calculate the new firm value: This is done by adding the present value of the tax shield to the original firm value.

New firm value = $3.75 million + $659,887.64 = $4.41 million

So, the value of Bega Barley Corp after the restructure will be approximately $4.41 million.

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