What is the value of beautiful widgets equity

Assignment Help Financial Management
Reference no: EM132056835

There are two firms, Beautiful Widgets (BW) and Glamorous Thingamajigs (GT). Each has expected Net Operating Income (NOI) of $5 million each year forever, and the NOI to BW will always be exactly the same as that to GT, whether it ends up above or below the expected amount. After any interest payments, all income is paid out to equity holders. BW is all equity (stock). GT has some equity, along with $20 million (market value and face value) in perpetual debt. GT’s debt pays risk-free 6% interest each year, while BW has expected return on its equity of 3.3%. There are no taxes, and the rest of the Modigliani-Miller assumptions hold.

a. What is the value of BW equity?

b. What is the value of GT equity?

c. What is the expected cash flow to GT equity holders each year?

d. What is the expected return on GT stock?

Reference no: EM132056835

Questions Cloud

Calculate the capital asset pricing model required return : Calculate the capital asset pricing model's required return (k) and Jensen's measure of excess return, alpha, for the following investment projects.
Research the costs of a pay-per-use plan vs a per user : Research the costs of a pay-per-use plan vs. a per user licensing plan based on the number of seats or participants for Microsoft's LiveMeeting and Cisco's WebE
How many different groups of guests can you have : Since you will take up one seat, you can only have five friends at one time. How many different groups of guests can you have?
What amount should m recognize as compensation expense : An option-pricing model estimates the fair value of the options to be $5 on the date of grant. What amount should M recognize as compensation expense for 2013
What is the value of beautiful widgets equity : What is the value of Beautiful Widgets equity? What is the value of Glamorous Thingamajigs equity? What is the expected return on GT stock?
How many ways can the flu virus randomly : Sixteen people work in an office. 10 are women and 6 are men. The flu virus is coming.
What is the incremental analysis : If production does increase dramatically after their presentation on Shark Tank, the Lees will need more space for production. They have two options.
Would a diagram make more sense than a checklist : Business processes refer to the manner in which work is organized, coordinated, and focused to produce a valuable product or service.
Distribution for the number of purchases made in a? week : For a randomly chosen person from this? group, what is the probability distribution for the number of purchases made in a? week?

Reviews

Write a Review

Financial Management Questions & Answers

  What is the projects net present value

East Coast Television is considering a project with an initial outlay of $X (you will have to determine this amount). It is expected that the project will produce a positive cash flow of $44,000 a year at the end of each year for the next 13 years. T..

  Strategic planning-customer and market focus

Nonprofit organizations that have been judged outstanding in quality leadership; strategic planning; customer and market focus

  What is the present value of this liability

Imprudential, Inc., has an unfunded pension liability of $600 million that must be paid in 24 years. what is the present value of this liability?

  Ace adjusted basis in each of residential rental properties

Ace's "adjusted basis" in each of the residential rental properties, the bulldozer, and the tractor is:

  How do patients costs change if imaging and surgery rates

How do patients’ costs change if imaging and surgery rates rise?

  Considering building plant for initial investment

What is the NPV of the project and should Acme wait one year? Acme Industries is considering building a plant for an initial investment of $100 million

  Is the futures overpriced or underpriced

Assuming continuous compounding, suppose the risk-free rate is 5.96 percent, and the dividend yield on the index is 2.75 percent. Is the futures overpriced or underpriced?

  Particular stock has a dividend yield

A particular stock has a dividend yield of 1.5 percent. Last year, the stock price fell from $82 to $68. What was the return for the year?

  Company to pay dividends with borrowed money

Is it good or bad for a company to pay dividends with borrowed money? Lets say a company has had regular cash dividends to its stockholder for over 50 years. In it's current operating year, the company experienced a severe cash flow crisis. Would it ..

  Use foreign sales agents to do the marketing

manufacture the product yourself in the U.S. and use foreign sales agents to do the marketing.

  Company has higher return on equity

Dupont Analysis: Company A and Company B each had a return on assets (ROA) of 7.5% in 2017. Company A has a higher return on equity (ROE) than Company B.

  Prevent leachate from migrating into the groundwater

The Camino Real Landfill was required to install a plastic liner to prevent leachate from migrating into the groundwater.

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!

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