Reference no: EM133110716

1. TPG Company is currently unlevered and has no debt.  The firm has $500 million in assets and expects to generate $20 million in EBIT.  TPG has a 4.00% cost of debt and a 28% tax rate. Which of the following is true?

Group of answer choices

Increasing the firm's leverage will decrease TPG's expected return on equity

TPG can increase its expected unlevered return on assets next year if it borrows money in a recapitalization and uses the proceeds to repurchase equity

TPG can increase its expected return on equity if it borrows money in a recapitalization and uses the proceeds to repurchase equity

Changing the firm's capital structure will have no impact on the firm's expected return on equity

2.  intrinsic valuation method (if any) is most appropriate for valuing a firm whose capital structure is expected to change in the future?

Group of answer choices

None, all instrinsic valuation methods require the assumption of a stable capital structure

Adjusted Present Value

Discounted unlevered free cash flows - flows to firm

Discounted levered free cash flows - flows to equity holders

Trim Company has an enterprise value of $850 million.  The firm has $45 million in excess cash, $100 million in debt and $12 million in minority interest.  Trim Company has 35 million shares of common stock outstanding.  What is Trim's implied stock price?