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Q8a
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1. Which one of the following statements is correct?
2. A firm has 100,000 shares of stock outstanding. The firm is considering
borrowing $1.3 million at 7.5% interest and using the loan proceeds to
repurchase 25,000 shares of stock. What is the value of the firm? Ignore taxes.
3. A firm has a debt-equity ratio of 1.0. The required return on the firm s
assets is 16.1% and the pre-tax cost of debt is 9.1%. Ignore taxes. What is the
firm s cost of equity?
4. A company is an all-equity firm that has projected earnings before
interest and taxes (EBIT) of $500,000 forever. The current cost of equity is 15%
and the tax rate is 33%. The company is in the process of issuing $1.5 million
of bonds at par that carry a 6% annual coupon. What is the unlevered value of
the firm (in millions)? (Note: You should use MM capital structure model with
corporate taxes, but without personal taxes and bankruptcy costs.)
5. From Question 4, what is the levered value of the firm (in millions)?

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Q8a

  • 1. Q8a buy here http://finishedexams.com/homework_tex t.php?cat=18 www.finishedexams.com Immediate access to solutions for ENTIRE COURSES, FINAL EXAMS and HOMEWORKS RATED A+" - Without Registration!
  • 2. 1. Which one of the following statements is correct? 2. A firm has 100,000 shares of stock outstanding. The firm is considering borrowing $1.3 million at 7.5% interest and using the loan proceeds to repurchase 25,000 shares of stock. What is the value of the firm? Ignore taxes. 3. A firm has a debt-equity ratio of 1.0. The required return on the firm s assets is 16.1% and the pre-tax cost of debt is 9.1%. Ignore taxes. What is the firm s cost of equity? 4. A company is an all-equity firm that has projected earnings before interest and taxes (EBIT) of $500,000 forever. The current cost of equity is 15% and the tax rate is 33%. The company is in the process of issuing $1.5 million of bonds at par that carry a 6% annual coupon. What is the unlevered value of the firm (in millions)? (Note: You should use MM capital structure model with corporate taxes, but without personal taxes and bankruptcy costs.) 5. From Question 4, what is the levered value of the firm (in millions)?