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As a financial consultant, you are given the following information about two companies, one levered and one unlevered. Copy the table below to your answer sheet and fill in the missing figures. Show the steps you used to calculate them. Assume that the corporate tax rate is 40% and all cash flows are perpetual. Before tax operating income Interest on debt Cost of capital (WACC) Cost of Equity capital Cost of Debt capital Value of equity Value of debt Unlevered $10 000 0 Levered $10 000 $2 500 16% $22 500 3

As a financial consultant, you are given the following information about two companies, one levered and one unlevered. Copy the table below to your answer sheet and fill in the missing figures. Show the steps you used to calculate them. Assume that the corporate tax rate is 40% and all cash flows are perpetual. Before tax operating income Interest on debt Cost of capital (WACC) Cost of Equity capital Cost of Debt capital Value of equity Value of debt Unlevered $10 000 0 Levered $10 000 $2 500 16% $22 500 3

Essentials Of Investments
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
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As a financial consultant, you are given the following information about two companies, one levered and one unlevered. Copy the table below to your answer sheet and fill in the missing figures. Show the steps you used to calculate them. Assume that the corporate tax rate is 40% and all cash flows are perpetual. Before tax operating income Interest on debt Cost of capital (WACC) Cost of Equity capital Cost of Debt capital Value of equity Value of debt Value of firm Unlevered $10 000 0 Levered $10 000 $2 500 16% $22 500 3
Transcribed Image Text:As a financial consultant, you are given the following information about two companies, one levered and one unlevered. Copy the table below to your answer sheet and fill in the missing figures. Show the steps you used to calculate them. Assume that the corporate tax rate is 40% and all cash flows are perpetual. Before tax operating income Interest on debt Cost of capital (WACC) Cost of Equity capital Cost of Debt capital Value of equity Value of debt Value of firm Unlevered $10 000 0 Levered $10 000 $2 500 16% $22 500 3
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