Chapter 18, Problem 11P

a)

Summary Introduction

To determine: The market value of Firm A.

Introduction:

Market value is a value an asset would make in the market place. Market value is normally referred to as market capitalization of an openly traded organizations it is attained by multiplying the number of shares outstanding by the present share price.

b)

Summary Introduction

To determine: The amount of interest that Firm A will pay in the next year and its expected growth of interest payments.

Introduction:

Market value is a value an asset would make in the market place. Market value is normally referred to as market capitalization of an openly traded organizations; it is attained by multiplying the number of shares outstanding by the present share price.

c)

Summary Introduction

To determine: The present value of interest tax shield of Firm A.

Introduction:

The present value of interest tax shield is $1,155.

d)

Summary Introduction

To determine: The total market value and market value of equity.

Introduction:

Market value is a value an asset would make in the market place. Market value is normally referred to as market capitalization of an openly traded organizations; it is attained by multiplying the number of shares outstanding by the present share price.

e)

Summary Introduction

To determine: The WACC for Firm A.

Introduction:

Weighted average cost of capital (WACC) is the rate which a company is expected to pay, on an average, to all the security holders in order to finance its assets.

f)

Summary Introduction

To determine: The expected return of equity using WACC method.

Introduction:

Weighted average cost of capital (WACC) is the rate at which a company is expected to pay, on an average, to all the security holders in order to finance its assets.

g)

Summary Introduction

To determine: The beta in the following case.

Introduction:

Market value is a value an asset would make in the market place. Market value is normally referred to as market capitalization of an openly traded organizations; it is attained by multiplying the number of shares outstanding by the present share price.

h)

Summary Introduction

To determine: The cash flows of the equity holder that are expected to receive in one year, the growth rate of cash flows, and compare the answer with part d.

Introduction:

Weighted Average Cost of Capital (WACC) is the rate at which a company is expected to pay, on an average, to all the security holders in order to finance its assets.