Find expected return of mm stock

Reference no: EM1348556

Wolfrum tech.(WT) has no debt. Its assets wiil be worth $450 million in one year if the economy is strong, but only $200 million in one year if the economy is weak. Both events are equally likely. The market value today of assets is $250 million.

a) What is the expected return of WT stock without leverage?

b) Suppose the risk-free interest rate is 5%. If WT borrows $100 million today at this rate and uses the proceeds to pay immediate cash dividends, what will be the market value of its equity just after the dividend is paid, according to MM?

c) What is the expected return of MM stock after the dividend is paid in part (b)?

Reference no: EM1348556

Questions Cloud

Cloud computing like elastic scalability and outsourcing : It also help business to use the best features of cloud computing like, elastic scalability and outsourcing. what are your toughts on the above statement? Do you agree or disagree?

Spending variance for lesinski snow : Lesinski Snow Removal's cost formula for its vehicle operating cost is $1,770 per month plus $483 per snow-day.

Machiavellian personality : Machiavellian personality - Is there really a personality type that can be called Machiavellian

Define the type of packet filters : Define the type of packet filters that you might build to capture traffic destined to you six critical Web servers?

Find expected return of mm stock : Wolfrum technology has no debt. Its assets wiil be worth $450 million in one year if the economy is strong, but only $200 million in one year if the economy is weak.

Determining cost of goods manufactured and sold : The following information pertains to pandey manufacturing company for March 2012. Assume actual overhead equaled applied overhead.

Juvenile competency to stand trial : Compare the similarities and differences between how juveniles and adults are assessed for competency to stand trial. In this area, briefly describe the issues that distinguish juveniles from adults in.

Explain how brand equity and brand personality benefit : Pick a product with high brand equity, and then describe its brand personality and describe how brand equity and brand personality benefit the brand and its company.

Distinguish aming the functional personal income : Illustrate distinguish between the functional distribution and personal distribution of income.

User Account

All Pages