--%>
Assignment Help - homework help

Two Questions

Question 1 An all equity firm has a required return on its equity of 15%, has 10 million shares outstanding, and pays no taxes. The shares are currently trading at $6.00 each. The firm is planning to borrow $9 million at 5% interest rate and use the borrowed funds to buyback a portion of its equity. Calculate the new value of the firm and the new required return on its equity if it goes through with the capital structure change. Question 2 Using the Modigliani/Miller propositions with taxes, calculate the change in the value of the firm and the change in the required return on equity if it borrows and $2,000,000 and uses the funds to retire $2,000,000 of its equity. The cost of the debt will be 8% and the current required return on equity is 14%. Currently, the firm has 3,000,000 shares outstanding and they are selling for $4.00 each and no debt. The corporate tax rate is 40%.

   Related Questions in Finance Basics

  • Q : Describe present value of the firms

    Describe the term "present value of the firm's operations" (also known as Enterprise Value). What does this number expose? The current value of the company's free cash flows reveals the market value of the firm's core income generating operatio

    		•
  • Q : Can a company hold a default rate on

    Can a company hold a default rate on its accounts receivable that is too low? Describe. A company could hold a default rate on AR which would be considered too low if by liberalizing credit terms a significant rise in sales revenue and cash inf

    		•
  • Q : Question related to MPC Normal 0 false

    Normal 0 false false

  • Q : What is Abolishment of Fund Abolishment

    Abolishment of Fund: It is a closure of fund pursuant to the operation of law. The funds might also be administratively eliminated by the Department of Finance with the concurrence of the State Controller’s Office. Whenever a sp

    		•
  • Q : Describe depreciation expense Describe

    Describe depreciation expense as it seems on the income statement.  Accounting depreciation is the allocation of asset's primary cost over time. Depreciation cost on an income statement is the amount of the asset=s initial cost allocated to

    		•
  • Q : Example-implicitly-weighed marginal

    Cite three example of recent decisions which you made in which you, at least implicitly, weighed marginal costs & marginal benefits.

    		•
  • Q : What is Other Finance Refund to

    Refund to Reverted Appropriations: It is a receipt account to record the return of monies (example, abatements and reimbursements) to appropriations which have reverted.

    		•
  • Q : Describe the role of cash and of

    Describe the role of cash and of earnings while a corporation is deciding how much, if any, cash dividends to pay to common stockholders. In the long-run earnings are essential to maintain dividend payments; however at the time an actual dividen

    		•
  • Q : Better risk measure in evaluating risk

    Why is the coefficient of variation a better risk measure to employ than the standard deviation while evaluating the risk of capital budgeting projects? The coefficient of variation is a better risk measure than the standard deviation alone sinc

    		•
  • Q : Explain Merit Salary Adjustment Merit

    Merit Salary Adjustment (MSA): The cost factor resultant from the periodic raise in salaries paid to the personnel occupying authorized positions. The personnel usually receive a salary raise of 5 percent per year up to the upper sala

    		•