Determine the cost of equity after the debt issuance

Assignment Help Financial Management

Reference no: EM131442514

Assume a firm’s cost of capital with zero debt is 0.15 and the cost of debt is 0.08. The value of the unlevered firm is Vu = (150,000/0.15)= $1,000,000

Where, $150,000 is the expected after-tax earnings, with zero debt. If $500,000 of debt is substituted for stock -

(a) Determine the value of the firm (no cost of financial distress and no investor taxes). The corporate tax rate is 0.35.

(b) Determine the value of the outstanding stock after the debt issuance.

(d) Determine the weighted average cost of capital with the debt.

(e) Using the FCF method, compute the firm’s present value.

(f) Compute he firm’s present value using the APV method.

Reference no: EM131442514

Questions Cloud

Compute national income from the gdp : Using the data in Exhibit 11, compute national income (NI) by making the required subtraction from the GDP. Explain why NI might be a better measure of economic prerformance than GDP.

Confidence interval for the population mean income : A random sample of 900 individuals was performed that recorded each individual's income. The sample mean was found to be 51 and sample standard deviation was 13 (both measured in thousands of dollars). What is the bound on the error of estimation ..

Liquidity risk at a financial intermediary is the risk : Liquidity risk at a financial intermediary (FI) is the risk

Which common core standard or early learning standard : ECE 430- Identify which Common Core Standard or Early Learning Standard you will address and which National Association for the Education of Young Children standard is being covered (in the Standards section of the template).

Determine the cost of equity after the debt issuance : Assume a firm’s cost of capital with zero debt is 0.15 and the cost of debt is 0.08. The value of the unlevered firm is Vu = (150,000/0.15)= $1,000,000. Determine the value of the firm (no cost of financial distress and no investor taxes). The corpo..

Develop a model to predict the salary : Develop a model to predict the salary based on (Gender, Age, Performance Rating, and Degree). State the multiple regression equation. Interpret the meaning of the slopes in this equation.

More liquid investment than a capital market security : Financial intermediaries (FIs) can offer savers a safer, more liquid investment than a capital market security, even though the intermediary invests in risky illiquid instruments because

Competitive environment analysis : Competitive Environment Analysis. Who are Polaris’ direct competitors? What are the key success factors needed to compete in this industry? Primary competitor’s goals and strategy. What is the depth and breadth of competitor’s product line?

Compare the difference between a male and female manager : Analyze what you consider to be the four characteristics of an effective manager or leader in the workplace. Consider characteristics such as honesty, integrity, or people skills. Should managers and leaders perform the same task?

User Account

All Pages