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 per year. A.) What is the value of Alpha Corporation ? B.)What is the value of Beta Corporation ? C.) What is the Market Value of Beta Corporations Equity ? D.) How much will it cost to purchase 15 percent of each firm’s equity? E.) Assuming each firm meets its earnings estimates, what will be the dollar return to each position in part (d) over the next year?
Alpha Corporation and Beta Corporation are identical in every way except their capital structures. Alpha Corporation,...
Alpha Corporation and Beta Corporation are identical in every way except their capital structures. Alpha Corporation, an all-equity firm, has 9,400 shares of stock outstanding, currently worth $22 per share. Beta Corporation uses leverage in its capital structure. The market value of Beta’s debt is $46,000, and its cost of debt is 12 percent. Each firm is expected to have earnings before interest of $48,000 in perpetuity. Neither firm pays taxes. Assume that every investor can borrow at 12 percent...
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...
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...
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...
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...
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...
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...
w questions, All questions carry equal marks Q1. The two companies, Alpha and Beta, belones to an equivalent risk class. These two firms are identical in every respect except that Alpha firm is unlevered while firm Beta has 10 debentures of Rs.30 lakh. The other relevant information regarding their valuation and capitalization rates are as follows: Particulars Net operating income(EBIT) Interest on Debt (1) Earnings to Equity holders(NT) Equity capitalisation rate(ke) Market value of Equity Market value of Debt Total...
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...
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...