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The company A has a ratio of loans to equity equal to 1. The required return on equity of the company is 12% and the
The company A has a ratio of loans to equity equal to 1. The required return on equity of the company is 12% and the borrowing cost before taxes is 8%. Sales are and will remain stable at the level EUR 15.4 million. Cost variables are at 70% of sales. The company distributes all profits to its shareholders at the end of each year. The tax rate at 25%
i)What is the value of the company as undivided( without leverage)?
ii) What is the value of leverage business? What is the value of them and what of them loan funds?
iii)How to explain the difference in business value in questions I and II ?
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