User Account

All Pages

What are the values of the debt and equity today

Assignment Help Accounting Basics
Reference no: EM133040312

Question - Assume the assets of a firm will be worth either $100 million or $200 million in 1 year with equal (50%) probability. The firm owes debt holders a payment of $100 million in 1 year. (For convenience assume a discount rate of 0% throughout for all valuations. Absolute priority rules hold, i.e., the debt gets paid first. Hint: Think DCF!)

Required -

a. What is the value of the firm today?

b. What are the values of the debt and equity today?

c. Imagine the firm pays stockholders a dividend of $10 million in 1 year (in both states of the world), just before the debt comes due. This dividend payment reduces the value of the assets in 1 year to $90 million and $190 million in the two states. What are the values of the debt and equity today, where the dividend should be included in the equity value?

Reference no: EM133040312

Questions Cloud

Explain to him how he will empty and change his ostomy bag : Mr. Hayes is now at a point where he is interested in learning about ostomy care. Explain to him how he will empty and change his ostomy bag at home.
What the unrealized profit in ending inventory : Parent owns 90% of subsidiary and $10,000 is the last year unrealized profit. Subsidiary reported 20,000 income. What the unrealized profit in ending inventory
Procedure e-mail or memo : Procedure E-Mail or Memo: Running Meetings More Efficiently Management guru Peter Drucker once said, "Meetings are a symptom of a bad organization.
Estimate the mean number of calories : The caloric consumption of 32 American adults was measured and found to average 2,157. Assume the population standard deviation is 260 calories per day.
What are the values of the debt and equity today : What are the values of the debt and equity today, where the dividend should be included in the equity value
Differences between manufacturing and services : Compare the differences between Manufacturing and Services?
Calculate the employee medicare tax : 1. You own a small business selling computers. Each computer is sold for the same price: $425.00 each. Your sales team is paid on salary with the potential for
What would profit or loss be at the september expiration : What would your profit or loss be at the September expiration if the cheapest deliverable bond you could purchase in the market were a 15-year
Existing tables that have a relationship with the new tables : -Let us assume that the HR Director is a super fan of a popular zombie apocalypse themed show on TV and takes it too seriously. He has established new procedure

Reviews

Write a Review

Accounting Basics Questions & Answers

  How much control does fed have over this longer real rate

Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest.   How much control does the Fed have over this longer real rate?

  Coures:- fundamental accounting principles

Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.

  Accounting problems

Accounting problems,  Draw a detailed timeline incorporating the dividends, calculate    the exact Payback Period  b)   the discounted Payback Period. the IRR,  the NPV, the Profitability Index.

  Theory of interest - term structure of interest rates

Term Structure of Interest Rates

  Write a report on internal controls

Write a report on Internal Controls

  Prepare the bank reconciliation for company

Prepare the bank reconciliation for company.

  Cost-benefit analysis

Create a cost-benefit analysis to evaluate the project

  Theory of interest

Theory of Interest: NPV, IRR, Nominal and Real, Amortization, Sinking Fund, TWRR, DWRR

  Liquidity and profitability

Distinguish between liquidity and profitability.

  What is the expected risk premium on the portfolio

Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.

  Simple interest and compound interest

Simple Interest, Compound interest, discount rate, force of interest, AV, PV

  Capm and venture capital

CAPM and Venture Capital

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: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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