Question
Attila Corp. and Duck Corp. are in the same industry and have identical cash flows before interest and taxes. That means their revenues and costs
Attila Corp. and Duck Corp. are in the same industry and have identical cash flows before interest and taxes. That means their revenues and costs are identical. Attila has 500 shares outstanding, each priced $68. Its debt is in the form of perpetual bonds. It has 160 bonds outstanding each with market value of $100. Duck has 1000 shares outstanding and it has perpetual debt with market value of $20,000. The shares of Attila have beta of 1.5. The debt is riskless for both firms. The corporate tax rate is 20%. The risk-free rate is 3% and the market risk premium is 5%. Find the following: a) What is the share price of Duck Corp? b) What is equity beta for Duck Corp? c) What are the weighted average costs of capital for the two firms?
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