Levered, Inc., and Unlevered, Inc., are identical in every way except their capital structures. Each company expects to earn $28.8 million before interest per year in perpetuity, with each company distributing all its earnings as dividends. Levered’s perpetual debt has a market value of $89 million and costs 8 percent per year. Levered has 2.1 million shares outstanding that sell for $117 per share. Unlevered has no debt and 4.3 million shares outstanding, currently worth $77 per share. Neither firm pays taxes. What is the value of each company's equity?
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Levered, Inc., and Unlevered, Inc., are identical in every way except their capital structures. Each company...
Levered, Inc., and Unlevered, Inc., are identical in every way except their capital structures. Each company expects to earn $29.7 million before interest per year in perpetuity, with each company distributing all its earnings as dividends. Levered’s perpetual debt has a market value of $98 million and costs 9 percent per year. Levered has 3 million shares outstanding, currently worth $112 per share. Unlevered has no debt and 5.2 million shares outstanding, currently worth $87 per share. Neither firm pays...
Problem 16-16 MM Proposition I Levered, Inc., and Unlevered, Inc., are identical in every way except their capital structures. Each company expects to earn $12.5 million before interest per year in perpetuity, with each company distributing all its earnings as dividends. Levered’s perpetual debt has a market value of $73 million and costs 4 percent per year. Levered has 3.1 million shares outstanding that sell for $89 per share. Unlevered has no debt and 4.8 million shares outstanding, currently worth...
Unlevered (U) and Levered (L) are two forms identical in every way except for their capital structures. U is an all equity firm has 15000 shares outstanding, currently worth $30/share. L uses leverage. The market value of debt $65000 and the cost of debt is 9%. Each firm is expected to have earnings before interest of $75,000 in perpetuity. Neither firm pays taxes. Every investor can borrow at 9% a year. What is the value of U and L? What...
(2) Consider two firms: ABC: an all equity firm. It has 9 million common shares outstanding, worth $40/share. XYZ: is a levered firm with 4.6 million shares at $52.50/share. Its perpetual debt has a market value of $91 million and costs 8% a year. They are identical in every other way. Both firms expect to earn $29 million before interest/year in perpetuity, with each company distributing all earnings as dividends. Neither pay taxes. Assume the debt of XYZ is correctly...
Base Corp and Eastern Tech are two identical companies except for their capital structures. Neither firm pays taxes. Both firms have EBIT of $35,000 in perpetuity. Base Corp is unlevered and has 5,000 shares outstanding, each worth $20. Eastern Tech is levered and has $25,000 in debt at a cost of debt of Rd = 12%. How much is Base Corp worth? How much is Eastern Tech worth? What is Eastern Tech’s market value of equity? How much would it...
Alpha Corporation and Beta Corporation are identical in every way except their capital structures. Alpha Corporation, an all-equity firm, has 18,000 shares of stock outstanding, currently worth $30 per share. Beta Corporation uses leverage in its capital structure. The market value of Beta’s debt is $68,000 and its cost of debt is 9 percent. Each firm is expected to have earnings before interest of $78,000 in perpetuity. Neither firm pays taxes. Assume that every investor can borrow at 9 percent...
1. Night Inc. has unlevered cash flows of $1,470,000 each year in perpetuity. The unlevered cost of capital (ru) is 14%. The firm plans to issue $6 million in perpetual debt with a return of 8% (to repurchase stock). The tax rate is 25%. If the value of the levered firm is $11,500,000, use the trade-off theory to find the present value of the financial distress costs. Unless stated otherwise, compounding is annual and payments occur at the end of...
Alpha Corporation and Beta Corporation are identical in every way except their capital structures. Alpha Corporation, an all-equity firm, has 10,000 shares of stock outstanding, currently worth $20 per share. Beta Corporation uses leverage in its capital structure The market value of Beta's debt is $60,000 and its cost of debt is 8 percent. Each firm is expected to have earnings before interest of $70,000 in perpetuity. Neither firm pays taxes. Assume that every investor can borrow at 8 percent...
please answer the following: c) (2+1+2+ 2+3+2) Unlevered (U) and Levered (L) are two forms identical in every way except for their capital structures. U is an all equity firm has 15000 shares outstanding, currently worth $30/share. Luses leverage. The market value of debt $65000 and the cost of debt is 9%. Each firm is expected to have earnings before interest of $75,000 in perpetuity. Neither firm pays taxes. Every investor can borrow at 9% a year. (i) What is...
a) (2) Consider two firms: ABC: an all equity firm. It has 9 million common shares outstanding, worth $40/share. XYZ: is a levered firm with 4.6 million shares at $52.50/share. Its perpetual debt has a market value of $91 million and costs 8% a year. They are identical in every other way. Both firms expect to earn $29 million before interest/year in perpetuity, with each company distributing all earnings as dividends. Neither pay taxes. Assume the debt of XYZ is...