Question
The common stock and debt of Windows Phone Corp. are valued at $79 million and $40 million, respectively. Investors currently require a 18% return on
The common stock and debt of Windows Phone Corp. are valued at $79 million and $40 million, respectively. Investors currently require a 18% return on the common stock and an 9% return on the debt. There are no taxes.
Suppose you prefer the original capital structure with a 18% return on the common stock and a WACC of 14.97%. If you have $1,500 to invest, how much should you invest in the stock and bonds of the restructured firm (which have returns of 19.3% and 9%, respectively) to obtain the same return as an investment in the stock of the original firm? Enter your answers rounded to 2 DECIMAL PLACES.
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