Digby Corp. ended last year with a surplus of cash and a leverage of 2.9. If Digby Corp. had used all of that cash to payoff liabilities what would their leverage have been?Select: 1A. 2.3B. 0.3C. 0.8D. 1.0

To decide the leverage of Digby Corp. After the usage of all its cash to pay off liabilities, we…

Answered: Digby Corp. ended last year with a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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M... Levered Beta Market Value of Equity Market Value of Debt: Cash Marginal Tax Rate Firm A 1.50 $2.4 million $600 million $50 million 37% Firm B 1.25 $1.0 billion $200 million $75 million 37% 2b. Compute the unlettered beta corrected for cash for each firm (show work). 2c. Using the unlettered beta for corrected for cash, calculate the unlevered beta of Firm A after the acquisition (show work) 2d. Firm A borrowed $1.0 billion and assumed Firm B's debt. Compute the levered beta of Firm A after the acquisition.
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If you owned a company, would you prefer the market value of its assets to rise $10million or the market value of its liabilities to fall $10million?
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Capital Structure Analysis The Rivoli Company has no debt outstanding, and its financial position is given by the following data: $ 45 6 ✔ Expected EBIT Growth rate in EBIT, gL Cost of equity, rs Shares outstanding, no Tax rate, T (federal-plus-state) a. What is Rivoli's intrinsic value of operations (i.e., its unlevered value)? Round your answer to the nearest dollar. 4500000✔✔ $ What is its intrinsic stock price? Its earnings per share? Round your answers to the nearest cent. Intrinsic stock price: $ Earnings per share: $ 4.50 b. Rivoli is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 35% debt based on market values, its cost of equity, rs, will increase to 12% to reflect the increased risk. Bonds can be sold at a cost, rd, of 8%. Based on the new capital structure, what is the new weighted average cost of capital? Round your answer to three decimal places. 9.9 % What is the levered value of the firm? What is the…

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Digby Corp. ended last year with a surplus of cash and a leverage of 2.9. If Digby Corp. had used all of that cash to pay off liabilities what would their leverage have been? Select: 1 A. 2.3 B. 0.3 C. 0.8 D. 1.0