Question
A. Ethier Enterprise has an unlevered beta of 0.50. Ethier is financed with 40% debt and has a levered beta of 0.75000. If the risk
A.
Ethier Enterprise has an unlevered beta of 0.50. Ethier is financed with 40% debt and has a levered beta of 0.75000. If the risk free rate is 4.5% and the market risk premium is 6%, how much is the additional premium that Ethier's shareholders require to be compensated for financial risk? Round your answer to one decimal place.
%
B.
Quillpen Company is unlevered and has a value of $35 billion. An otherwise identical but levered firm finances 40% of its capital structure with debt. Under the MM zero-tax model, what is the value of the levered firm? Enter your answer in billions. For example, an answer of $1 billion should be entered as 1, not 1,000,000,000. Round your answer to the nearest whole number.
$ billion
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