User Account

All Pages

Homework Help, Corporate Finance

Assignment Help:
Look back to Section 13–1 (Table 13.2 on p. 329). Suppose that Ms. Macbeth’s investment bankers have informed her that since the new issue of debt is risky, debt holders will demand a return of 12.5%, which is 2.5% above the risk-free interest rate.

a. What are rA and rE?

b. Suppose that the beta of the unlevered stock was .6. What will A, E, and D be after the change to the capital structure?
Step 1:
Operating income F
Market value of shares F
Expected return on debt F
Number of Shares F
Price per share F
Market value of shares- new debt F Tip - see sidebar for Table 2
Market value of debt F
Formula Calculation
a. rA T C TIP: see formulas on p. 331
rE T C
Calculation
b. ßA F
ßE C TIP: calculate E/V and D/V first
ßD C
Number of shares 500
Price per share $10
Market value of shares $5,000
Market value of debt $5,000
Interest at 10% $500
Operating Income 500 1,000 1,500 2,000
Interest 500 500 500 2,000
Equity earnings 0 500 1,000 1,500
Earnings per shares 0 1 2 3
Return on shares 0 10 20 30

Related Discussions:- Homework Help

Cash flow from an income statement, Describe how to build a cash flow from ...

Describe how to build a cash flow from an income statement.

Have mergers affected competition, Have mergers affected competition? ...

Have mergers affected competition? A: Federal Reserve data show that measured on the local level, where competition takes place, markets have actually experienced more bank

Correlation coefficiant, the variance of stock a is .004,the variance of ma...

the variance of stock a is .004,the variance of market is .007,co variance between two is .0026 calculate correlation coefficient

Discuss assumptions underlying the diversification theory, Question: a)...

Question: a) You have just been appointed a portfolio manager of Malou investment. An investor has two assets available from which to form his desired portfolio. Asset X has a

Market efficiency, differentiate between allocative efficiency and price ef...

differentiate between allocative efficiency and price efficiency

Derive the fund separation theorem, Question 1: (a) What are the compe...

Question 1: (a) What are the competing theories which have been put forward to explain the term structure of interest rates? Which theories do the evidence tend to support?

Fundamentals of Corporate finance, #17

#17

IRR, A firm issues bonds with a coupon rate of 10%, paid annually, having a...

A firm issues bonds with a coupon rate of 10%, paid annually, having a par value of 1000, YTM of 8% and maturity of 10 years. What is the IRR of buying the bond today and selling

What are "in-market" mergers, What are "in-market" mergers? A: An in-ma...

What are "in-market" mergers? A: An in-market merger is one that takes place between two banks operating in the same geographic area, typically a city or metropolitan area. The

Efficiency, differentiate between aloocative effiency and pricing effiency

differentiate between aloocative effiency and pricing effiency

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

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: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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