7) (10 points, 20 mins) Companies A and B are dry bulk shippers. Both are all equity financed 35M/year of revenue for t = 1 to 10 Cost: Shipping crew = 3M per year Cost: Fuel = 6M per year Cost: Insurance = 1M per year Assume the appropriate discount rate is 0% Tax rate is 20% Company A: Will buy their own ships (capex of 100M at t = 0) by issuing equity at t = 0 Capex will be depreciated using straight line depreciation over 10 years assuming a 0 salvage value. Market value of ships is zero at t = 10. Company B: Rents their ships at a cost of 10M/year paid at t = 1 to 10 a) What are the equity values of each company at t = 0 (before any equity issuance and capex)? b) What are the P 0/E1 ratios for each company? c) What are the P 0/C 1 ratios for each company, where C 1 is cash flow at t= 1? d) Repeat questions a, b, c, for company A only, but now from the point of view of t = 0 right after the equity issuance