Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please answer the this carefully the other solutions werent informative Pari Inc., an all - equity firm, has earnings before interest and taxes of $

please answer the this carefully the other solutions werent informative
Pari Inc., an all-equity firm, has earnings before interest and taxes of $950,000 and an un-levered beta of .80. The firm has 200,000 common shares issued and outstanding. In the market, you observe that Government T-bills are being sold to yield 2% and the S&P/TSX Composite Index is expected to yield 9%. Assume M&M case I, with no taxes and no cost for the risk of default. All general M&M assumptions apply.
a) What is the market value of the firm? (2 marks)
b) What is the WACC for the firm. (1 mark)
c) What is the market value of a share in the company and what is the EPS? (2 marks)
d) What is the market value of the firm and the market value of the equity if they issue $5,000,000 in debt with a coupon rate of 4.5% and use the proceeds to repurchase shares? (2 marks)
e) What is the new cost of equity? (2 marks)
f) According to CAPM, what is the new beta? (2 marks)
g) What is the WACC? (2 marks)
h) Explain what happens to the market value of the firm and the WACC if the firm increases itsdebt-to-equity ratio. (1 mark)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Overcoming Debt Achieving Financial Freedom

Authors: Cindy Zuniga-Sanchez

1st Edition

1119902320, 978-1119902324

More Books

Students also viewed these Finance questions

Question

When is interest recorded as an expenditure in Debt Service Funds?

Answered: 1 week ago

Question

* What is the importance of soil testing in civil engineering?

Answered: 1 week ago

Question

Explain the concept of shear force and bending moment in beams.

Answered: 1 week ago