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Please explain. The capital structure of company X is 50% debt and 50% equity. The company is expected to pay an average dividend per share
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The capital structure of company X is 50% debt and 50% equity. The company is expected to pay an average dividend per share of $2 for each future period. The firm has very good credit rating, so its debt is considered risk free. The debt takes the form of a perpetuity, paying each year interests for a value of $500. The risk-free interest rate is r = 0.05, there are no taxes and all the assumptions of the Modigliani-Miller theorem hold. = 1. Find the value D of the debt of the firm. Next, find the value of E (remember that the company is financed 50% debt and 50% equity). 2. There are 500 shares of the firm. Find the rate of return on equity re and the price of a share. 3. Find the rate of return ra on the assets of the firmStep by Step Solution
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