Find the required rate of return for the un-levered firm

Assignment Help Finance Basics

Reference no: EM131969543

Question: EIEIO Agriculture Inc. is a sole proprietorship company that is located in New Bedford Nova Scotia that is owned by your best friend and they have come to you for advice - don't disappoint them. Your friend is the only owner. The company is currently an un-levered firm. A company in this type of industry has a beta of 1.428571429 and you observe that government t-bills are selling to yield 3% and the market portfolio has an expected return of 10%. Your friend expects that they will be able to earn the required rate of return forever on an expected before tax earnings of $800,000 per year. Note: all final rates carry 6 decimal places.

Assuming that the tax rate is 40 percent, there is no cost for the risk of default and any debt that is issued will have a 4% coupon interest rate, what is:

the required rate of return for the un-levered firm. Show all of your work!

the market value of the firm using proposition I. Show all of your work!

the WACC for the firm using proposition II. Show all of your work!

Reference no: EM131969543

Questions Cloud

Calculate the annual lease payments required : Calculate the annual lease payments required by Hernandez Leasing Co, given their implicit rate of return.

Embassies and consuls and consulates : What are the differences in immunity for ambassadors and their embassies and consuls and their consulates? Explain the rationale and implications.

What does motivation mean : What does motivation mean? List the theories of motivation and explain each one, then choose your preferred one and explain why you chose it.

Explain how long it will take to quadruple investment : Explain how long it will take to quadruple an investment made at 8% per year.

Find the required rate of return for the un-levered firm : EIEIO Agriculture Inc. is a sole proprietorship company that is located in New Bedford Nova Scotia that is owned by your best friend and they have come to you.

Calculate the npv and irr with and without mitigation : An electric utility is considering a new power plant in northern Arizona. Power from the plant would be sold in the Phoenix area, where it is badly needed.

Share a disruptive technology : Several technologies seemed futuristic a few years ago, but are reality today. Share a disruptive technology and explain the difference it is making to health.

What is the range of risk aversion for which client : What is the range of risk aversion for which a client will neither borrow nor lend, that is, for which y = 1?

Amount of your profit or loss from position in call option : Determine the total dollar amount of your profit or loss from your position in the call option.

User Account

All Pages