Consider a firm with a debt-equity ratio

Assignment Help Finance Basics
Reference no: EM13979459

Consider a firm with a debt-equity ratio of 0.40. The required rate of return on this firm's unlevered equity is 18% and the pre-tax cost of debt is 8%. Sales, which totalled $34 million last year, are projected to remain at that level for the foreseeable future. Variable costs comprise 52% of sales, while fixed costs are $5,000,000. The corporate tax rate is 35% and all earnings are distributed as dividends to shareholders at the end of each year. Based on the above information, answer the following questions:

a)     What is the value of the firm if it carried no debt?

b)    What is the required rate of return on the firm's levered equity?

c)     What is the value of the company's debt and equity using the WACC method?  Use the WACC to also calculate the firm's total value.

d)    What is the value of the firm's equity if the FTE method is used?

 

Reference no: EM13979459

Questions Cloud

Design a networked system using diagramming software : Design a networked system using diagramming software to meet the specification given in the assignment scenario in terms of user requirements and network infrastructure
What is the force on the car : A student gets his car stuck in a snow drift. Not at a loss, having studied physics, he attaches one end of a stout rope to the vehicle. what is the force on the car?
Medical expense insurance policy : Ashley has an individual medical expense insurance policy with a $1000 calendar-year deductible and a 20% coinsurance clause. Ashley had outpatient surgery to remove a bunion on her foot and incurred medical bills of $10,000.
Apply the government failure concepts : The past twenty years have witnessed considerable concern in the United States about the quality of public schooling, particularly in urban areas
Consider a firm with a debt-equity ratio : Consider a firm with a debt-equity ratio of 0.40. The required rate of return on this firm's unlevered equity is 18% and the pre-tax cost of debt is 8%. Sales, which totalled $34 million last year, are projected to remain at that level for the forese..
What is the current ratio : Suppose Levi's Luxury Shop has cash of $8,745, inventory of $36,287, fixed assets of $14,204, accounts payable of $66,410, and accounts receivable of $20,033. What is the current ratio?
What is the potential difference across the capacitor : How much charge is stored on the 6 μF capacitor, What is the potential difference across the 10 μF capacitor? Which capacitor stores the most energy in the circuit?
Problem regarding the stock market value : Walker, inc. plans to issue preferred stock with a perpetual annual dividend of $2.00 per share and a par value of $25.00. If the requiredreturn on this stock is currently 8%, what should be the stock's market value?
Financial reporting environment : Prepare a 2 page newsletter that identifies and summarises developments and changes in the financial reporting environment for the period23 July 2012 - 27 August 2012, inclusive

Reviews

Write a Review

 

Finance Basics Questions & Answers

  How was your firm affected by the government bail out it

effects of fiscal policythink about how fiscal policy can effect your firm microsoft corporation. please address the

  Nature of the controversy regarding company

What was the nature of the controversy regarding this company's practices? How were accounting practices involved?

  Develop a break-even chart for the textbook

East Publishing Corporation is doing an analysis of a proposed new finance textbook. Using the following information

  Bartletts pears has a profit margin of 75 percent on sales

bartletts pears has a profit margin of 7.5 percent on sales of 26000000. if the firm has debt of 9500000 and total

  Fitness and diet be accomplished separately

Can stress management/fitness and diet be accomplished separately? If so, why?

  Is signature from one of the companys a necessary part of

your company inc. wants to do business with my company llc. because our companies are both savvy they would like to

  Month interest on the overdue balance

One of your customers is delinquent on his accounts payable balance. You've mutually agreed to a repayment schedule of $500 per month. You will charge 1.40 percent per month interest on the overdue balance.

  Ct of internally generated

given a current stock price of 20.00 an expected dividend next year of 2.00 d1 and a dividend growth rate of 4 compute

  Which is an advantage of corporations relative to

which is an advantage of corporations relative to partnerships and sole proprietorships?a lower taxes.b harder to

  A mathematical calculation is needed

Directions: Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link in the course shell. This homew..

  Information about initial public offerings

Your work for this module is to apply the concept of the present value to your chosen SLP company. Assume your company is selling the bond that will pay you $1000 in one year from today.

  What are firm income tax liability and its after-tax income

The Talley Corporation had a taxable income of $485,000 from operations after all operating costs but before (1) interest charges of $97,000, (2) dividends received of $29,100.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd