User Account

All Pages

What is the value of a share in the company

Assignment Help Finance Basics
Reference no: EM132711571

Echelon Limited has an EBIT of $500,000. The firm has a corporate tax rate of 40% and has an un-levered beta of .85. The firm has 110,000 common shares issued and outstanding. In the market, you observe that Government T-bills are being sold to yield 3% and the S&P/TSX Composite Index is expected to yield 12%. Assume a world of taxes and a cost for the risk of default. All general M&M assumptions apply.

a) Calculate the value of the firm.

b) Calculate the WACC for the firm.

c) What is the value of a share in the company and what is the EPS?

d) What is the value of the firm if the firm issues $800,000 of bonds at par with a coupon rate of 5.5%? The beta for the equity of the leveraged firm is .98.

e) What is the value of the firm if the firm issues $900,000 of bonds at par with a coupon rate of 8.5%? The beta for the equity of the leveraged firm is 1.25.

f) What is the optimal level of debt $0, $800,000 or $900,000? Explain.

g) What is the WACC for the firm at the optimal level of debt?

Reference no: EM132711571

Questions Cloud

List five distinct duties of the estate executor : List five distinct duties of the Estate Executor
Firm cost of equity-sinclair ltd : Sinclair Ltd. is a levered firm with a weighted average cost of capital of 12%. Currently the company has a debt to equity ratio of 1.5, a before-tax cost of de
Weighted average cost of capital of fitness depot : If the tax rate is 35% and there is no cost of financial distress, what is the weighted average cost of capital of Fitness Depot?
Company cost of equity-layers inc : Layers Inc. currently has no debt. If they choose to borrow, they can do so at a rate of 6.4%. The firm's WACC is currently 9.5% and the tax rate is 35%.
What is the value of a share in the company : Echelon Limited has an EBIT of $500,000. The firm has a corporate tax rate of 40% and has an un-levered beta of .85. The firm has 110,000 common shares
What is the current market yield of bond : ConEdison Utility Company has four-year bonds outstanding that pay a coupon rate of 6.6% and make coupon payments semiannually.
How the law of contract and land law : Assess the laws used to ensure that construction sites operate safely and consider adjoining land-users and how the law of contract and land law are used
Unit 5 Legal & Statutory Responsibilities in Construction : Unit 5 Legal & Statutory Responsibilities in Construction Assignment Help and Solution, Construction and the Built Environment - Assessment Writing Service
Weighted average cost of capital for ford : What is the weighted average cost of capital for Ford if its marginal tax rate is 40%?

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd