User Account

All Pages

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 much was the car

Today you buy a used car. The dealer accepts a down payment of $2,000 and lets you pay $1,900 per year for 5 years. The interest rate on the loan was 6%. How much was the car?

  What is annual yield to maturity

you are about to invest in a 10 yr 8% semiannual bond. The bond is selling at $980.What is annual yield to maturity.

  Imagine a startup company of your own and briefly trace its

imagine a startup company of your own and briefly trace its development from a sole proprietorship to a major

  Decision making question

Ben Bates graduated from college 6-years ago with a finance undergraduate degree. Although he is satisfied with his current job, his aim is to become and investment banker.

  Indicate whether investment should be accepted or rejected

During the life of the investment, annual net income and cash inflows are expected to be $25,000 and $65,000, respectively. Yappy requires a 10% return on all new investments.

  Compute the cost of common equity

Eaton Electronic Companys treasurer uses both the capital asset pricing model and the dividend valuation model to compute the cost of common equity (Also referred to as the required rate of return for common equity)

  Find the market return for an asset

Find the market return for an asset with a required return of 16% and a beta of 1.10 when the risk-free rate is 9% and find the beta for an asset with a required return of 15 percent.

  The stock exchanges in regulating the securities industry

Explain the role of the role of the sec, the NASD, and the stock exchanges in regulating the securities industry.

  Describe forward-futures-options foreign currency markets

Describe forward, futures and options foreign currency markets, and discuss how they demonstrate arbitrage problems in international finance. Use a minimum of three resources to support your discussion.

  Time is money-emily oster

Please give a written summarization on article "Time is Money" by Emily Oster. What is the take away of article?

  What are the consequences of leaving a large estate

Ann, age 61, and Bob, age 62, have a large number of investments in common stock of publicly traded corporations, some municipal bonds, and a money market cash account worth several million dollars. What are the consequences of leaving a large esta..

  Identify sources of risk and contrast them include examples

your response should be at least 250 words in length. you are required to use at least your textbook as source material

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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