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Daenerys Targaryen's new firm, Rent-a-Dragon, is 100% equity financed. The Mother of Dragons firm is expected to have perpetual EBIT of $56 million per year.
Daenerys Targaryen's new firm, Rent-a-Dragon, is 100% equity financed. The "Mother of Dragons" firm is expected to have perpetual EBIT of $56 million per year. The unlevered equity or asset Beta is 1.0. The riskless rate is 4%, and the market risk premium is 6%. There are 10 million shares of common stock outstanding. The corporate tax rate is 25%. A. Calculate the total value of Rent-a-Dragon as an all equity firm, as well as the stock price. B. Rent-a-Dragon announces that it will issue $160 million of perpetual riskless debt at a cost of 4% and repurchase $160 million of equity. Calculate the new total value VL (enterprise value) of Rent-a-Dragon as a levered firm, new total value of equity, and the new stock price after this debt for equity exchange is finished. C. Calculate the new cost of equity and WACC of Rent-a-Dragon as a levered firm
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