What is required rate of return on the firms levered equity

Assignment Help Financial Management

Reference no: EM131021741

Consider a firm with a debt-equity ratio of 0.40. The required rate of return on this firm’s unlevered equity is 18% and the pre-tax cost of debt is 8%. Sales, which totalled $34 million last year, are projected to remain at that level for the foreseeable future. Variable costs comprise 52% of sales, while fixed costs are $5,000,000. The corporate tax rate is 35% and all earnings are distributed as dividends to shareholders at the end of each year. Based on the above information, answer the following questions:

What is the value of the firm if it carried no debt?

What is the required rate of return on the firm’s levered equity?

What is the value of the company’s debt and equity using the WACC method? Use the WACC to also calculate the firm’s total value.

What is the value of the firm’s equity if the FTE method is used?

Reference no: EM131021741

Questions Cloud

Find the price of a call option on the stock : The current price of a stock is $15. In 6 months, the price will be either $20 or $11. The annual risk-free rate is 4%. Find the price of a call option on the stock that has a strike price of $14 and that expires in 6 months.

Develop a presentation to illustrate your elevator talk : Develop a five-slide PowerPoint presentation, not including the title and reference slides, to illustrate your elevator talk or speech. Include the actual elevator talk presentation in the notes section.

Use daily compounding-current price of stock : The current price of a stock is $22. In 1 year, the price will be either $28 or $14. The annual risk-free rate is 4%. Find the price of a call option on the stock that has a strike price is of $23 and that expires in 1 year. (Hint: Use daily compound..

Find the slope of the line through the points : Graph the equation. You may use the axes provided, or create your own graph.

What is required rate of return on the firms levered equity : Consider a firm with a debt-equity ratio of 0.40. The required rate of return on this firm’s unlevered equity is 18% and the pre-tax cost of debt is 8%. Sales, which totalled $34 million last year, are projected to remain at that level for the forese..

Methods of conflict resolution : The specific question could be, "How has Hillary Clinton made attempts to maintain peace between the U.S. and hostile countries like North Korea and Iran?"

Mortgage with a teaser rate. : A mortgage broker is offering a $289,000 33-year mortgage with a teaser rate. In the first two years of the mortgage, the borrower makes monthly payments on only a 5.5 percent APR interest rate. After the second year, the mortgage interest rate charg..

What is minimum price hank would need to receive for car : Hank purchased a $23,700 car two years ago using a 10 percent, 6-year loan with monthly payments. He has decided that he would sell the car now, if he could get a price that would pay off the balance of his loan. What's the minimum price Hank would n..

What are the monthly payments : You wish to buy a $11,000 dining room set. The furniture store offers you a three-year loan with a 13 percent APR. What are the monthly payments? Monthly payments $ What are the monthly payments if you only paid interest over the length of the loan a..

User Account

All Pages