Find the market value and cost of capital

Assignment Help Finance Basics

Reference no: EM1362533

The U Co. and the L Co. are identical in all aspects except that U Co. is all-equity financed while L Co. has $1,000 debt in 6% perpetual bonds outstanding (on which $60 of interest is paid each year). Both firms have expected net operating income of $300 (forever). Both firm distribute as dividends all income available to shareholders. There are no taxes. Assume no agency costs or bankruptcy costs. The cost of equity is 10% for the U Co. and 12% for the L co.

38. What is the market value of the L Co.?
A) $2,000
B) $1,000
C) $3,000
D) $6,000

39. What is the cost of capital for the L Co.?
A) 9%
B) 8%
C) 10%
D) 12%

40. What is the total income available annually to the U Co.'s security holders?
A) $300
B) $155
C) $65
D) $240

Reference no: EM1362533

Questions Cloud

Compute the percentage bid : Assume the euro is quoted at 0.7064-80 in London and the pound sterling is quoted at 1.6244-59 in Frankfurt.

Show task analysis and performance analysis : Discuss Training and Development - Show in detail Task Analysis and Performance Analysis

Computing ratios : Using the Balance Sheet and Income Statement compute the following ratios:

Discuss the impact of goals : Discussing the Impact of Goals - Show the impact that goals have had on your organization. Were they effective and Were they communicated to you directly

Find the market value and cost of capital : The U Corporation and the L Corporation are identical in all aspects except that U Co. is all-equity financed while L Co. has $1,000 debt in 6% perpetual bonds outstanding.

Explain bureaucracy in healthcare : Is bureaucracy necessary to deliver effective health care and Why or why not - Is bureaucracy necessary to deliver effective health care?

Calculating sales and total assets : If I have a store that had a net income in 2005 of $90,000. some of the financial ratios from my annual report are:

Show healthcare telecommuting : Show Healthcare Telecommuting - Explain the advantages and disadvantages of telecommuting from a healthcare perspective

Compute the amount of new funds required to finance : Sales for 2005 were $300,000. Sales for 2006 have been projected to Increase by 20 percent. Suppose that my company is operating below capacity, compute the amount of new funds required to finance the projected growth.

User Account

All Pages