Question
Dot.com expects to earn $300,000 in perpetuity before interest and taxes. The company has a debt to value ratio of 30%. The cost of debt
Dot.com expects to earn $300,000 in perpetuity before interest and taxes. The company has a debt to value ratio of 30%. The cost of debt is 10%. If the company had no debt, its cost of capital would have been 15%. The firm's tax rate is 30%.
a) What are the value of Dot.com's equity and the (firm) value of Dot.com? b) What is the cost of capital? c) What is the required rate of return on equity?
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Financial Management Principles and Applications
Authors: Sheridan Titman, Arthur J. Keown, John H. Martin
13th edition
134417216, 978-0134417509, 013441750X, 978-0134417219
