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Question - Assume an M&M world with no corporate or personal taxes. Market conditions are such that fms = 5%, = 15%. XYZ Corp. is currently all-equity financed and has a value of $100,000,000. XYZ currently gives a return on equity of 18%. Determine the value of XYZ ´s equity beta β.
Assume the M & M model with no taxes.
a) List at least three of the assumptions of the model, other than the fact that no corporate or personal taxes exist.
b) For each of the assumptions you listed above, provide a brief explanation of why each of the assumptions is necessary or mention the effect the variable might otherwise have on the value of the firm as perceived by investors.
c) Briefly state the conclusion of the M&M model with no taxes, by stating the results known as propositions I and II. Include a mention of "home-made leverage" in your explanation.
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