Question
Omega Tech has 20 million shares outstanding with a market price of 15 per share and no debt. The corporate tax rate is 21% and
Omega Tech has 20 million shares outstanding with a market price of 15 per share and no
debt. The corporate tax rate is 21% and all the other Modigliani-Mille assumptions hold. The
rate of return on risk-free securities is 5%, the risk premium on the market portfolio is 12%,
and the beta of Omega Tech is 0.7.
d)Explain why in reality companies are not financed 100% by debt.
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Macroeconomics Principles Applications and Tools
Authors: Arthur O'Sullivan, Steven Sheffrin, Stephen Perez
9th edition
978-0134089027, 134089022, 978-0134420684
