What email address or phone number would you like to use to sign in to Docs.com?
If you already have an account that you use with Office or other Microsoft services, enter it here.
Or sign in with:
Signing in allows you to download and like content, and it provides the authors analytical data about your interactions with their content.
Embed code for: FIN 516 DeVry Week 2 Homework Chapter Problems
Select a size
FIN 516 DeVry Week 2 Homework Chapter Problems
Downloading is very simple, you can download this Course here: http://mindsblow.us/question_des/FIN516DeVryWeek2HomeworkChapterProblems/5047
Contact us at: email@example.com
Problem 14-11 Based on Chapter 14: WACC and Modigiani & Miller Extension Models With Growth Assumptions
Consider the en
Downloading is very simple, you can download this Course here:
Contact us at:
Consider the entrepreneur described in Section 14.1 (and referenced in Tables 14.1– 14.3). Suppose she funds the project by borrowing $750 rather than $500.
a. According to MM Proposition I, what is the value of the equity? What are its cash flows if the economy is strong? What are its cash flows if the economy is weak?
b. What is the return of the equity in each case? What is its expected return?
c. What is the risk premium of equity in each case? What is the sensitivity of the levered equity return to systematic risk? How does its sensitivity compare to that of unlevered equity? How does its risk premium compare to that of unlevered equity?
d. What is the debt-equity ratio of the firm in this case?
e. What is the firm’s WACC in this case?
Problem 14-18 Based on Chapter 14: WACC and Modigliani & Miller Extension Models With Growth Assumptions
In mid-2012, AOL Inc. had $100 million in debt, total equity capitalization of $3.1 billion, and an equity beta of 0.90 (as reported on Yahoo! Finance). Included in AOL’s assets was $1.5 billion in cash and risk-free securities. Assume that the risk-free rate of interest is 3% and the market risk premium is 4%.
a. What is AOL’s enterprise value?
b. What is the beta of AOL’s business assets?
c. What is AOL’s WACC?
Problem 15-15 Based on Chapter 15: Debt and Taxes
Acme Storage has a market capitalization of $100 million and debt outstanding of $40 million. Acme plans to maintain this same debt-equity ratio in the future. The firm pays an interest rate of 7.5% on its debt and has a corporate tax rate of 35%.
a. If Acme’s free cash flow is expected to be $7 million next year and is expected to grow at a rate of 3% per year, what is Acme’s WACC?
b. What is the value of Acme’s interest tax shield?