HeadAche Inc. depends on two sources of financing: bond issues and common stock. In the following table, you can see the market value of these two sources as well as required rates of return: Market Value Required Return Bonds $480,000,000 8.00% Common stock $720,000,000 12.00% Total $1,200,000,000 Other financial information: 1) Using FCFF, what is the present value of the firm, and the present value of the equity? 2) Using FCFE, what is the present value of the equity?
HeadAche Inc. depends on two sources of financing: bond issues and common stock. In the following table, you can see the market value of these two sources as well as required rates of return: Market Value Required Return Bonds $480,000,000 8.00% Common stock $720,000,000 12.00% Total $1,200,000,000 Other financial information: 1) Using FCFF, what is the present value of the firm, and the present value of the equity? 2) Using FCFE, what is the present value of the equity?
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
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HeadAche Inc. depends on two sources of financing: bond issues and common stock. In the following table, you can see the market value of these two sources as well as required
|
Market Value |
Required Return |
Bonds |
$480,000,000 |
8.00% |
Common stock |
$720,000,000 |
12.00% |
Total |
$1,200,000,000 |
|
Other financial information:
1) Using FCFF, what is the
2) Using FCFE, what is the present value of the equity?
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