Find the equity value and D-E ratio

Assignment Help Accounting Basics
Reference no: EM133042588

Question - Rahman Co. has an expected EBIT of $120,000 in perpetuity and tax rate of 40%. The firm is paying 8.75% interest for $210,000 outstanding amount of debt. Unlevered cost of capital is 11.75%.

a. Evaluate the firm using Modigliani and Miller approach (Case (II), Proposition (I) with taxes)?

b. Find the equity value and D/E ratio?

c. Under the Modigliani and Miller approach (Case II, Proposition I with taxes), explain how the firm can increase its value using the financial leverage? And explain the reason behind that?

Reference no: EM133042588

Questions Cloud

Prepare an absorption-costing income statement : During 2020, Rafael Corp. produced 55,000 units and sold 49,500 for $17 per unit. Prepare an absorption-costing income statement
What is the internal rate of return : An investment that Kevin is considering offers the following cash flows. What is the internal rate of return (IRR) that this investment offers
Calculate the employee net second bonus : Earlier this year Gloria received a performance bonus of $3,525.00. Calculate the employee net second bonus
Determine the cost per unit for jobs : Job 40 is for 1,000 units, and Job 42 is for 200 units. Determine the cost per unit for Jobs 40 and 42 at the end of August
Find the equity value and D-E ratio : Question - Rahman Co. has an expected EBIT of $120,000 in perpetuity and tax rate of 40%. Find the equity value and D-E ratio
ICT274 E-commerce Assignment : ICT274 E-commerce Assignment Help and Solution, King Owns Institute - Assessment Writing Service - understanding of the value of the use of E-commerce
Calculate the convexity for a three-year : Question - Calculate the convexity for a three-year 4.5% coupon rate with a face value of $500,000 loan with amortised payments
What is average capitalization rate on general borrowings : Hebi determined that weighted average expenditures for the construction in 2021 was P36,000,000. What is average capitalization rate on general borrowings
Find the determinant and inverse of the matrix : Apply instances of number theory in practical construction situations and Solve systems of linear equations relevant to construction applications using matrix

Reviews

Write a Review

Accounting Basics Questions & Answers

  Review engagement and other regarding compilation engagement

For each item, give two responses, one regarding review engagements and the other regarding compilation engagements.

  What is the amount of her child tax credit

Sophia is a single mom with a 17 year old daughter whom she claims as a dependent on her tax return. What is the amount of her child tax credit

  Jackman inc makes and sells many consumer products the

jackman inc. makes and sells many consumer products. the firms average contribution margin ratio is 22 percent.

  Prepare journal entries on appropriate dates for dividend

Prepare journal entries on the appropriate dates for the 2021 dividend. Preferred shares, $3.50 cumulative, 21,900 shares issued

  What is the predetermined overhead rate

In December 2010, Kent Computer's management establishes the year 2011 predetermined overhead rate based on direct labor cost.

  Make the end of the month application general journal entry

Use this information to make the end of the month application General Journal entry (without explanation) of factory overhead for Job A-1 for the month

  Calculate the cost of beef budgeted for the dinner

Calculate the cost of beef budgeted for the dinner and the total beef variance (i.e. the difference between budgeted and actual cost)

  What reported on the government-wide statement of activities

Summit County issued $10,000,000 in variable rate debt, Interest expense on bonds for fiscal 2021, reported on the government-wide statement of activities, is?

  Preparing a presentation on managerial accounting

You have been asked to prepare a presentation on managerial accounting for the next board of directors meeting for your company. Prepare a paper of 2-3 pages that discusses the following:

  How should recommend the prepayment be recorded

How should recommend the prepayment be recorded? Up until now, he's been entering a bill for all the inventory items and paying 75% of the bill.

  What is Rio cost of goods manufactured for February

Rio applies manufacturing overhead to its products at a rate of 200% of direct labor cost. What is Rio's cost of goods manufactured for February

  Human development and socialization

As a part of your examination, be sure to discuss the relationship between human development and socialization and how this relationship affects your selected psychological disorder. Use a minimum of four sources.

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!

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