Find the new cost of equity , Finance Basics

You are interested in the value of Joes Shoe Corporation and its cost of capital. Suppose you believe that the assumptions of Miller-Modigliani's Proposition 1 (without taxes) are valid.

a. Find the new value of the company, the new cost of equity and the new weighted average cost of capital if the currently unlevered company, valued at $1,470,000 (i.e. VU) issues debt of $700,000 at a 9% interest rate. You can assume that the company uses this debt to repurchase stocks. Assume also that the initial cost of equity was 11%.

b. Consider your answer this time with a corporate tax rate of 28%. You may assume that the value of the unlevered firm is still $1,470,000 even though taxes have gone from 0 to 28%.


Posted Date: 3/13/2013 6:21:46 AM | Location : United States

Related Discussions:- Find the new cost of equity , Assignment Help, Ask Question on Find the new cost of equity , Get Answer, Expert's Help, Find the new cost of equity Discussions

Write discussion on Find the new cost of equity
Your posts are moderated
Related Questions
A manufacturing organisation has three production cost centres, the cutting department, the processing department and the finishing department, and two service cost centres, the st

The Audiology Department at Randall Clinic offers many services to the clinic''s patients. The three most common , along with cost and utilization data, are as follows: Service Var

Suppose the current yield curve is as follows: (a) Calculate the current market prices of two bonds with the following annual cash flows: Bond A: A coupon of $60 is due

mony is differnt from wealth and income

Importance and Solution of Dividend Decisions Dividends decisions are integral part of a firm's strategic financing decision. It is hence a plan of action adopted by managemen

how to do basic accountancy and what can i claim back

Acceptance Rule of IRR IRR will accept a venture if its IRR is higher than or equivalent to the minimum required rate of return such is usually the cost of finance also recogn

Price - Sales of Goods Like where section 10 provides such the price for goods may like fixed by like: (i) Contract; and one is (ii) The manner provided within the contr

On 1 January 2008, a young artist called Michelangelo signed a contract with a charity named Art Angels, which supports young artists to do large projects. The agreement requires M

Ask question #Minimu• 1.What is an Auction? E Bay is a market leader in online auction sites. Discuss SWOT for E bay using your web sources?. 2.Why so many entrepreneurs drawn to