Find the companies total value with leverage

Assignment Help Corporate Finance

Reference no: EM1345029

A company is on the verge of a new product launch. Depending on how well the product does in the marketplace, three possible outcomes for next years valuation are: $210m, $150m or $60m. The risk is diversifiable and the outcomes are equally likely. Assume that the risk free interest rate is 5% and ignore all other market imperfections, such as taxes. The company has $120 million in debt due next year.

1. What is the companies total value with leverage?

2. In the event of default 30% of the value of the companies assets will be lost in bankruptcy. What is the companies total value with leverage and distress costs?

Reference no: EM1345029

Questions Cloud

Viruses were first distinguished from other microorganisms : Viruses were first distinguished from other microorganisms, such as bacteria, based on which of the following (select one)? The majority of viruses that have been identified to date cause disease.

Find out the average resistance force exerted : Perpetual motion machines have fascinated people especially inventors for hundreds of years before the laws of thermodynamics became known. Ideally, once energy is added to start a perpetual motion in machine, the machine would continue to operate..

Explain and discuss stages in a financial crisis : Explain and discuss three stages found within a financial crisis for the United States?

Find the conversion price of stock : The tsetsekos Corporation was considering to finance an expansion. The principal executives of the c orporation all agreed that an industrial company such as theirs should finance growth by means of common stock rather than by debt.

Find the companies total value with leverage : A firm is on the verge of a new product launch. Depending on how well product does in marketplace, three possible outcomes for next years valuation are: $210 m, $150 m or $60 m.

Compute the debt to equity ratios : Considering the following three companies: i) eBay ii) The Clorox Company (CLX) iii) Alaska Air Group, Inc. (NYS: ALK).

Find the investment in capital project : Telecom Italia is considering investment in a capital project. Initial cost in year 0 is $149,000 to be depreciated straight line over five years to an expected salvage value of 15,000 dollar.

Find the current yield and yeild to maturity : Charlotte's Clothing issued a 5% bond with a maturity date of fifteen years. 5-years have passed and the bond is selling for $690.

Determine the bonds current yield and yield to maturity : A bond with fifteen years until maturity has a semiannual interest rate of $40. If the bond sells for its par value, determine the bond's current yield and yield to maturity values?

User Account

All Pages