What is the value and wacc of all-equity firm

Assignment Help Financial Management

Reference no: EM132000827

T-bills are currently yielding 1.5%; the expected return on the market is 8.5%; the company’s tax rate is 40%; and costs of financial distress apply. Assume the market value of debt is equal to its book value.

Value of Debt Cost of Debt (Rd) Beta PV of Financial Distress Costs

$0 - 1.25 -

$2,500,000 4% 1.45 ?

$4,000,000 5% ? $740,000

a) What is the value and WACC of this all-equity firm?

b) What would be the value of the company if it issues $2.5 million in debt?

c) What would the PV of financial distress costs be if the firm issues $2.5million in debt?

d) What would be the value of the company if it issues $4 million in debt?

e) What would be the company’s Beta if it issues $4 million in debt?

f) What is the optimal capital structure: 0, $2,500,000, or $4,000,000?

Reference no: EM132000827

Questions Cloud

Explain why the pre-payment premium is not constant : Explain why the pre-payment premium is not constant on January 17, 2018.

Fixed rate mortgage and arm mortgage : What is the difference between a 30-year fixed rate mortgage and an ARM mortgage? Why would a borrower choose one over the other?

Issuing new equity and increase in debt financing required : Calculate the maximum investment funds available without issuing new equity and the increase in debt financing required.

Key interest rate to calculate the key rate durations : Take a 20 basis point (.002) move in each key interest rate to calculate the key rate durations.

What is the value and wacc of all-equity firm : What is the value and WACC of this all-equity firm? What would be the company’s Beta if it issues $4 million in debt?

Excess-of-loss trade credit insurance policies : Trade credit insurance. "Excess-of-loss" trade credit insurance policies:

What is the appropriate discount rate for the project : What is the appropriate discount rate for the project if the debt/equity ratio is 0.5?

What is equivalent annual cost : You are evaluating a new machine that has a four-year life and costs $100,000. What is the Equivalent Annual Cost (EAC)?

Estimate is difference between the annual inflation rates : What would you estimate is the difference between the annual inflation rates of the United States and Japan?

User Account

All Pages