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Question 2. Duplex Corporation consists entirely of two business units, ABC and XYZ. ABC has a...
1. ABC and XYZ are two industry competitors, operating under MM perfect capital markets environment. ABC’s...
1. ABC and XYZ are two industry competitors, operating under MM perfect capital markets environment. ABC’s market-value-based Debt/Equity ratio is 3/7. Its market-value-based cost of debt, rD, is 7.5% and cost of equity, rE, is 15%. XYZ’s Debt/Equity ratio is 2/3. XYZ’s cost of debt, rD, is 7.875% E. What is the required rate of return on XYZ’s unlevered equity? Explain. F. What is the required rate of return on XYZ’s levered equity, rE?
Change Corporation expects an EBIT of $31,200 every year forever. The company currently has no debt,...
Change Corporation expects an EBIT of $31,200 every year forever. The company currently has no debt, and its cost of equity is 11 percent. a. What is the current value of the company? b. Suppose the company can borrow at 6 percent. If the corporate tax rate is 22 percent, what will the value of the firm be if the company takes on debt equal to 50 percent of its unlevered value? What if it takes on debt equal to...
12-2) Digital Design (DD) has a beta of 0.75. The tax rate is 30% and DD...
12-2) Digital Design (DD) has a beta of 0.75. The tax rate is 30% and DD is financed with 40 % debt. Unlevered Bels What is the company's unlevered beta? 12-3, Ethier Enterprise has an unlevered beta of 1.0. Ethier is financed with 50% debt and has a Premum fo levered beta of 1.6. If the risk-free rate is 5.59% and the market risk premium is 6%, how much is Financial Risk the additional premium that Ethier's shareholders require to...
Full moon Corporation expects an EBIT of $26,000 every year forever. The company currently has no...
Full moon Corporation expects an EBIT of $26,000 every year forever. The company currently has no debt, and its cost of equity is 15 percent. The corporate tax rate is 35 percent. What is the current value of the company? Suppose the company can barrow at 10 percent. What will the value of the firm be if the company takes on debt equal to 40 percent of its unlevered value? Suppose the company can barrow at 10 percent. What will...
ABC company currently has an all equity capital structure. ABC has an expected operating income (EBIT)...
ABC company currently has an all equity capital structure. ABC has an expected operating income (EBIT) of $12,000. Assume that this EBIT figure is perpetual, that is to say, EBIT will continue at this same level forever. Its cost of equity (which is also its WACC since there is no debt financing currently) is 11.3 percent. ABC company has plans to issue $32,500 in debt at a cost of 5.4 percent in order to buy back a same amount of...
18. Firm Value Cavo Corporation expects an EBIT of $26,850 every year forever The company currently...
18. Firm Value Cavo Corporation expects an EBIT of $26,850 every year forever The company currently has no debt, and its cost of equity is 14 percent. The tax rate is 35 percent. a. What is the current value of the company? b. Suppose the company can borrow at 8 percent. What will the value of the company bo if it takes on debt equal to 50 percent of its unlevered value? What if it takes on equal to 100...
Roll Corporation has 20,000 shares of common stock outstanding. It's financed entirely with equity. The un-levered...
Roll Corporation has 20,000 shares of common stock outstanding. It's financed entirely with equity. The un-levered cost of capital is 14%. The company distributes all of its earnings to equity holders as dividends at the end of each year. And Roll Corporation is subject to a corporate tax rate of 30%. Roll Corporation estimates that its annual EBIT will be as follow: 20% Bust with EBIT 2600, 50% Expected with EBIT 3620, 30% Expansion with EBIT 4900. The firm expects...
Roll Corporation has 20,000 shares of common stock outstanding. It's financed entirely with equity. The un-levered...
Roll Corporation has 20,000 shares of common stock outstanding. It's financed entirely with equity. The un-levered cost of capital is 14%. The company distributes all of its earnings to equity holders as dividends at the end of each year. And Roll Corporation is subject to a corporate tax rate of 30%. Roll Corporation estimates that its annual EBIT will be as follow: 20% Bust with EBIT 2600, 50% Expected with EBIT 3620, 30% Expansion with EBIT 4900. The firm expects...
Roll Corporation has 20,000 shares of common stock outstanding. It's financed entirely with equity. The un-levered...
Roll Corporation has 20,000 shares of common stock outstanding. It's financed entirely with equity. The un-levered cost of capital is 14%. The company distributes all of its earnings to equity holders as dividends at the end of each year. And Roll Corporation is subject to a corporate tax rate of 30%. Roll Corporation estimates that its annual EBIT will be as follow: 20% Bust with EBIT 2600, 50% Expected with EBIT 3620, 30% Expansion with EBIT 4900. The firm expects...
Lahm Co. keeps a constant debt policy. The company has an expected EBITDA that perpetually grows...
Lahm Co. keeps a constant debt policy. The company has an expected EBITDA that perpetually grows at a 1.90% annual rate. All the assets are fully depreciated. At the moment the debt is $18,000,000, its cost is 3.45% and it bears no systematic risk. The unlevered cash flow next year will be $3,095,450, the beta of unlevered equity is 1.12 and the market risk premium is 5.25%. If the tax rate is 35%, what is the value of the levered...
12-2) Digital Design (DD) has a beta of 0.75. The tax rate is 30% and DD is financed with 40 % debt. Unlevered Bels What is the company's unlevered beta? 12-3, Ethier Enterprise has an unlevered beta of 1.0. Ethier is financed with 50% debt and has a Premum fo levered beta of 1.6. If the risk-free rate is 5.59% and the market risk premium is 6%, how much is Financial Risk the additional premium that Ethier's shareholders require to...
18. Firm Value Cavo Corporation expects an EBIT of $26,850 every year forever The company currently has no debt, and its cost of equity is 14 percent. The tax rate is 35 percent. a. What is the current value of the company? b. Suppose the company can borrow at 8 percent. What will the value of the company bo if it takes on debt equal to 50 percent of its unlevered value? What if it takes on equal to 100...
Lahm Co. keeps a constant debt policy. The company has an expected EBITDA that perpetually grows at a 1.90% annual rate. All the assets are fully depreciated. At the moment the debt is $18,000,000, its cost is 3.45% and it bears no systematic risk. The unlevered cash flow next year will be $3,095,450, the beta of unlevered equity is 1.12 and the market risk premium is 5.25%. If the tax rate is 35%, what is the value of the levered...
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