A firm has current assets that could be sold for their book value of$24 million. The book value of its fixed assets is $62 million, but theycould be sold for $92 million today. The firm has total debt with abook value of $42 million, but interest rate declines have caused themarket value of the debt to increase to $52 million. What is the ratioof the market value of equity to its book value? (Round the answerto 2 decimal places.)

To find the ratio of the market value of equity to its book value.Given:- Current assets book value…

Answered: A firm has current assets that could be…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 8P

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Suppose the firm has a value of $169,411.77 when it is all equity financed. Now assume the firm issues $ 52,000 of debt paying interest of 6% per year and uses the proceeds to retire equity. The debt is expected to be permanent. What will be the value of the firm? Enter your answer rounded to two decimal places. Number What will be the value of the equity after the debt issue? Enter your answer rounded to two decimal places. Number
Assume Bismuth Electronics has a book value of $6 billion of equity and a face value of $19.7 billion of debt. The market values of equity and debt are $2.5 billion and $18.5 billion. A Wall Street financial analyst determines values of equity and debt as $3 billion and $20 billion. Which of the following values should be used for calculating the firm's WACC? A) $6 billion of equity and $19.7 billion of debt B) $2.5 billion of equity and $20 billion of debt C) $3 billion of equity and $19.9 billion of debt D) $2.5 billion of equity and $18.5 billion of debt
Use the following information to value a firm’s assets. Assume the following: the market value of the firm's assets is expected to remain constant over time so the firm doesn't grow and can be valued as a level perpetuity, the firm has a constant debt-to-assets ratio, the bonds are priced at par, and the stock's expected capital returns are zero. Relevant data: The number of shares on issue is 1 million and the number of bonds is 800,000 The constant annual dividend per share is $3 The bonds have an annual fixed coupon payment of $2.50 10-year government bonds have a yield of 2% and the market risk premium is 5% The beta of levered equity is 1.2 The beta of the bonds is 0.9 Which of the following is the market value of the levered firm’s assets? a. $68.3 million b. $21.2 million c. $70.1 million d. $42.9 million e. $54.7 million
An unlevered firm has expected earnings of $2,401 and a market value of equity of $19,600. The firm is planning to issue $4,000 of debt at 6 percent interest and use the proceeds to repurchase shares at their current market value. Ignore taxes. What will be the cost of equity after the repurchase?
A firm plans to grow at an annual rate of at least 16%. Its return on equity is 24%. Suppose the firm has a debt-equity ratio of 1/3. What is the maximum dividend payout ratio it can maintain without resorting to any external financing? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Answer is complete but not entirely correct. 33.33 X % Maximum dividend payout ratio
Suppose your firm has a market value of equity is $500 million and a market value of debt is $475 million. What are the capital structure weights (i.e., weight of equity and weight of debt)? Group of answer choices A) weight of equity is 51.28%, , weight of debt is 48.72% B) weight of equity is 48.72%, , weight of debt is 51.28% C) weight of equity is 47.62%, , weight of debt is 52.38%
You calculate that a firm has a total asset turnover of 0.12 and a profit margin of 0.92. If the firm reports that its ROE for the same time period is equal to 0.26, what must be the firms debt-to-equity ratio? Answer as a decimal (not percentage) to two decimal places.
Consider a simple firm that has the following market-value balance sheet: Assets Liabilities end equity $1 040 Debt Equity $400 640 Next year, there are two possible values for its assets, each equally likely: $1 180 and $960. Its debt will be due with 4.9% interest. Because all of the cash flows from the assets must go to either the debt or the equity, if you hold a portfolio of the debt and equity in the same proportions as the firm's capital structure, your portfolio should earn exactly the expected return on the firm's assets. Show that a portfolio invested 38% in the firm's debt and 62% in its equity will have the same expected return as the assets of the firm. That is, show that the firm's pre-tax WACC is the same as the expected return on its assets. If the assets will be worth $1 180 in one year, the expected return on assets will be %. (Round to one decimal place.)
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A firm plans to grow at an annual rate of at least 13%. Its return on equity is 21%. Suppose the firm has a debt-equity ratio of 1/3. What is the maximum dividend payout ratio it can maintain without resorting to any external financing? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

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