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I need some help answering 2 finance homework questions. If you could please include the work. Thank you for your help. Lindbergh Company has the
I need some help answering 2 finance homework questions. If you could please include the work. Thank you for your help.
Lindbergh Company has the
1. Lindbergh Company has the Following date related to its capital structure: What is the value of unlevered firm (Case A) and the levered firm (Case B) Correct Answer A. Vu = 1,110,416.67; Vl = 1,157,666.67 B. Vu = 1,010,416.67; Vl = 1,117,166.67 You Answered C. Vu = 1,708,333.33; Vl = 1,157,666.67 Incorrect. You did not consider taxes in calculation of the unlevered firm. 2. Prescott Inc. has the following data regarding its financial structure: Market value of outstanding debt: Value of firm if financed with all equity: Number of shares outstanding: Current price per share: Tax rate: $2,500,000 $14,450,000 250,000 $38.00 35 % What is the decrease in firm value due to expected bankruptcy costs? Correct answer is A A. $3,325,000 B. $4,950,000 C. $875,000 Your answer: $857,500 this is not even an answer choice. Incorrect. Tax rate times the amount of debt outstanding is not the decrease in value due to bankruptcy costs. = 1,708,333.33; Vl = 1,157,666.67 |
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