Firm has debt-equity ratio

Assignment Help Financial Management

Reference no: EM131913567

1. A firm has a debt-equity ratio of 1.0. The required return on the firm’s assets is 16.1% and the pre-tax cost of debt is 9.1%. Ignore taxes. What is the firm’s cost of equity?

15.3%

18.2%

23.1%

21.7%

2. A company is an all-equity firm that has projected earnings before interest and taxes (EBIT) of $500,000 forever. The current cost of equity rs = 10% and the tax rate T = 30%. The company is in the process of issuing $1.5 million of bonds at par that carry a 6% annual coupon. What is the unlevered value of the firm (in millions)? (Note: You should use MM capital structure model with corporate taxes, but without personal taxes and bankruptcy costs. The formula for the value of unlevered firm: VU = EBIT x (1-T) / rs)._______

$2.05 million

$2.23 million

$2.86 million

$3.50 million

3. According to the information from Question 9, what is the levered value of the firm (in millions)? (Note: The value of levered firm VL = VU + Present value of annual interest tax shield)_______

$3.95 million

$3.76 million

$3.22 million

$2.96 million

Reference no: EM131913567

Questions Cloud

According to the static theory of capital structure : According to the static theory of capital structure, a firm borrows up to which one of the following points? point where the firm is financed totally with debt

Harden servers and web servers : What default settings and applications need to be secured to harden servers and web servers? Be sure to name specific steps.

What are the causes of the management resistance : What are the causes of the management resistance to empowerment?

How does amazon approach its database solution : Read "Dynamo: Amazon's Highly Available Key-Value Store and answer the following:

Firm has debt-equity ratio : The required return on the firm’s assets is 16.1% and the pre-tax cost of debt is 9.1%. Ignore taxes. What is the firm’s cost of equity?

Define reputation risk and evaluate the potential effects : Define 'reputation risk' and evaluate the potential effects of FF's poor reputation on its financial situation

Which statistical test will you use for examining hypothesis : Pick a hypothesis you may want to test. Define these variables, and briefly explain your logic.

Why horizontal and vertical fit are important : Achieving both horizontal and vertical fit are important with regard to high-performance work systems, which do you consider more critical and why?

Discuss routing issues and solutions namely : Discuss routing issues and solutions namely, count-to-infinity, split horizon, split horizon with poison reverse, and hold-down timers.

User Account

All Pages