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Explain homemade leverage

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Reference no: EM132662030

a. Maestro Foods expects to earn $365,000 in perpetuity before interest and taxes from its line of gourmet TV dinners. the company has a debt to assets ratio of 40%. Cost of debt is 10%. If the company had no debt its cost of capital would have been 15%. The firms tax rate is 30%. What is the value of the firm? The value of its equity? The required rate of return on equity. The weighted average cost of capital?

b. Explain homemade leverage and why it matters?

c. Based on M&M without taxes and with taxes how much time should a financial manager spend analysing the capital structure of their firm? How about based on static theory?

Reference no: EM132662030

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