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a. 1. Altgeld Inc. has no debt. It has a market value of $120 million and a cost of equity capital of 12%. There is
a. 1. Altgeld Inc. has no debt. It has a market value of $120 million and a cost of equity capital of 12%. There is news that it plans to raise $40 million in debt and pay the proceeds to shareholders as an extra cash dividend. The cost of debt capital is 7%. Assume no taxes and a Modigliani-Miller world. What is the value of Altgeld Inc. after the change in leverage? What are the cost of equity and the cost of capital after the change in leverage? b. Assume no taxes and a Modigliani-Miller world. What is the fundamental determinant of the value of a firm? c. Assume a corporate tax of 15% and a Modigliani-Miller world. What is the value of Altgeld Inc. after the change in leverage? What are the cost of equity and the weighted average cost of capital after the change in leverage
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