Suppose there are no taxes. Firm ABC has no debt, and firm XYZ has debt of on which it pays interest of each year. Both companies have identical projects that generate free cash flows of or each year. After paying any interest on debt, both companies use all remaining free cash flows to pay dividends each year.
a. In the table below, fill in the debt payments for each firm and the dividend payments the equity holders of each firm will receive given each of the two possible levels of free cash flows.
b. Suppose you hold of the equity of ABC. What is another portfolio you could hold that would provide the same cash flows?
c. Suppose you hold of the equity of XYZ. If you can borrow at ,
what is an alternative strategy that would provide the same cash flows?
Suppose there are no taxes. Firm ABC has no debt, and firm XYZ has debt of $5,000 on which it pays interest of 10% each year. Both companies have identical projects that generate free cash flows of $5,100 or $5,400 each year. After paying any interest on
Suppose there are no taxes. Firm ABC has no debt, and firm XYZ has debt of $5,000 on which it pays interest of 10% each year. Both companies have identical projects that generate free cash flows of $5,600 or $5,300 each year. After paying any interest on debt, both companies use all remaining free cash flows to pay dividends each year. a. In the table below, fill in the debt payments for each firm and the dividend payments the equity...
Suppose there are no taxes. Firm ABC has no debt, and firm XYZ has debt of $ 4,000 on which it pays interest of 10 % each year. Both companies have identical projects that generate free cash flows of $ 4,600 or $ 4,300 each year. After paying any interest on debt, both companies use all remaining free cash flows to pay dividends each year. a. In the table below, fill in the debt payments for each firm and the...
Suppose there are no taxes. Firm ABC has no debt, and firm XYZ has debt of $ 6 comma 000 on which it pays interest of 10 % each year. Both companies have identical projects that generate free cash flows of $ 6 comma 100 or $ 6 comma 200 each year. After paying any interest on debt, both companies use all remaining free cash flows to pay dividends each year. a. In the table below, fill in the debt...
Suppose there are no taxes. Firm ABC has no debt, and firm XYZ has debt of $4,000 on which it pays interest of 9% each year. Both companies have identical projects that generate free cash flows of $700 or $1,100 each year. After paying any interest on debt, both companies use all remaining free cash flows to pay dividends each year a. In the table below, fill in the debt payments and equity dividends each firm will receive given each...
1 Suppose that XYZ Corp. will generate free-cash-flows (FCF) of $200 at the end of the year. XYZ has a cost of equity capital of 10%, a cost of debt capital of 5%, a market value debt-to-equity ratio of one, and faces a 21% tax rate. Assuming that XYZ’s FCF will grow by 3% per year in the future, what is the value of XYZ Corp? Round your final answer to two decimals? 2 Suppose that XYZ Corp. will generate...
1. Suppose that XYZ Corp. will generate free-cash-flows (FCF) of $200 at the end of the year. XYZ has a cost of equity capital of 10%, a cost of debt capital of 5%, a market value debt-to-equity ratio of one, and faces a 21% tax rate. Assuming that XYZ’s FCF will grow by 3% per year in the future, what is the value of XYZ Corp? Round your final answer to two decimals? 2. Suppose that XYZ Corp. will generate...
Suppose that XYZ Corp. will generate free-cash-flows (FCF) of $300 at the end of the year. XYZ has a cost of equity capital of 15%, a cost of debt capital of 5%, a market value debt-to-equity ratio of 0.5, and faces a 21% tax rate. Assuming that XYZ’s FCF will grow by 3% per year in the future, and XYZ Corp. has in debt with a market value of $2000, what is the value of XYZ’s Corp. equity? Round your...
Suppose that XYZ Corp. will generate free-cash-flows (FCF) of $400 at the end of the year. XYZ has a cost of equity capital of 12%, a cost of debt capital of 5%, a market value debt-to-equity ratio of 0.5, and faces a 21% tax rate. Assuming that XYZ’s FCF will grow by 3% per year in the future, what is the value of XYZ Corp? Round your final answer to two decimals?
Consider a project with free cash flows in one year of $143,429 or $190,456, with each outcome being equally likely. The initial investment required for the project is $106,859, and the project's cost of capital is 23 %. The risk-free interest rate is 6 %. a. What is the NPV of this project? b. Suppose that to raise the funds for the initial investment, the project is sold to investors as an all-equity firm. The equity holders will receive the...
Consider a project with a free cash flows in one year of 149,546 or 179,003, with each of outcome being equally likely, the initial investment required for the project is 93,227 and the project's cost of capital is 17%, the risk-free interest rate is 7%. e funds f A) What is the NVP of this project B) Suppose that to raise the funds for the initial investment the project is sold to investors as an all-equity firm. The equity holders...