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Alpha Corp. and Beta Corp. are identical in every way except their capital structures. Alpha Corporation, an all-equity firm, has 15,000 shares of stock outstanding,
Alpha Corp. and Beta Corp. are identical in every way except their capital structures. Alpha Corporation, an all-equity firm, has 15,000 shares of stock outstanding, currently worth $30 per share. Beta Corporation uses leverage in its capital structure. The market value of Beta's debt is $65,000, and its cost of debt is 9 percent. Each firm is expected to have earnings before interest of $75,000 in perpetuity. Neither firm pays taxes. Assume that every investor can borrow at 9 percent per year. (Do not round intermediate calculations. Omit \$ sign in your response.) a. What is the value of Alpha Corporation? Value of Alpha $ b. What is the value of Beta Corporation? Value of Beta $ c. What is the market value of Beta Corporation's equity? Market value of Beta's equity $ d. How much will it cost to purchase 20 percent of each firm's equity? e. Assuming each firm meets its earnings estimates, what will be the dollar return to each position in part (d) over the next year? f. This part of the question is not part of your Connect assignment. g. This part of the question is not part of your Connect assignment
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