Finance

Week 8 Chapter 14 Problems 2, 4 & 14 2. a) The totality market valuate of the firm without leverage is $4 trillion. constitutional apprise of virtue = 2 x $2million = $4 million. b) MM would have to cover 33% equity to raise $1 million. Since the total time value of equity is $4 million, $1 million of debt means total value of equity is $3 million. c) In (a), 50% x $4 million = $2 million. In (b), 2/3 x $3 million = $2 million. If we lived in a world with a faultless shopworn market the cream of capital structure does not affect the value of the entrepreneur. 4. a) The pass judgment return of WT stock without leverage would be 1.30 or 30%. (0.5 x 450 + .5 x 200) / 250 = 1.30 or 30% (225 + century) / 250 = 1.30 b) The market value of its equity plainly later(prenominal) the dividends is paid, according to MM would be one hundred fifty. E + D = 250, D = 100; Substitute 100 for D. E = one hun dred fifty c) The expected return of MM stock after dividends is paid in part (b) would be 1.4667 or 46.67%. (.5 x (450-105) + .5 x (200 -105)) / one hundred fifty = 1.4667 or 46.67% (.5 x 345) + (.5 x 95) / 150 = 172.5 + 47.5 / 150 = 1.4667 14. a) The expected return of the stock after the talk would be 12%.

wacc = 2(15%) / 3 + 6% / = 12% = ru b) i) re = ru + d/e (ru rd) = 12 + 150(12-6)/150 = 18% ii) If rd is higher, re is lower. The debt will share some of the risk. Chapter 15 Problems 2, 5, 16 & 25 2. a) Grommit salary income will change to $20.10 mill ion. The simoleons income will fall by ! the after-tax cheer expense to $20.750 1x (1-0.35) = $20.10 million. b) For the alike increase in interest expense the free bullion flow was not moved(p) by interest expenses. 5. Year| 0| 1| 2| 3| 4| 5| Debt| | 75| 50| 25| 0| 0| Interest| | 10| 7.5| 5| 2.5| 0| Tax Shield| | 4| 3| 2| 1| 0| PV| $8.30| | | | | 0| 16. a) The value of Milton Industries without leverage...If you ask to get a full essay, order it on our website: BestEssayCheap.com

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