Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:Consider a project of the Cornell Haul Moving Company, the timing and size of the incremental after-tax cash flows (for an all-equity
firm) are shown below in millions:
0
$990
+$125
+$225
+$375
+$500
The firm's tax rate is 34 percent; the firm's bonds trade with a yield to maturity of 8 percent; the current and target debt-equity ratio is
3; if the firm were financed entirely with equity, the required return would be 10 percent.
Using the flow to equity Imethodology, what is the value of the equity claim?
Multiple Choice
O
-$1,540,000
$446,570,866.00
$36,580,76755
3
$30,716,23613
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