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
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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
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
Give typing answer with explanation and conclusion A firm currently has a debt-equity ratio of 2/5. The debt, which is virtually riskless, pays an interest rate of 4 %. The expected rate of return on the equity is 13 %. What is the Weighted-Average Cost of Capital if the firm pays no taxes? Enter your answer as a percentage rounded to two decimal places. Do not include the percentage sign in your answer.
Can you please answer this part c follow up question: c) Suppose the initial £90,000 is raised by borrowing at the risk-free interest rateinstead of issuing equity. What are the cash flows to equity and debt holders, andwhat is the initial value of the levered equity according to Modigliani and Miller’sPropositions? Is the company’s cost of equity the same as before? Overall, can thecompany raise the same amount of capital as before? Explain your reasoning.
A firm has 4000m in balance sheet debt (book value is equal to market value in this case) and 1000m in capitalized leases. Market value of equity is 10000m. You can use book value of debt to approximate its market value. If you were to use this information in the calculation of WACC, what is Wd? O 40.00% O 28.57% O 33.33% O 50.00%
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.)
An all-equity firm has expected earnings of $14,200 and a market value of $82,271. The firm is planning to issue $15,000 of debt at 6.3 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?
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