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Use the following information to value a firms assets. Assume the following: the market value of the firm's assets is expected to remain constant over

Use the following information to value a firms assets.

Assume the following:

  • the market value of the firm's assets is expected to remain constant over time so the firm doesn't grow and can be valued as a level perpetuity,
  • the firm has a constant debt-to-assets ratio,
  • the bonds are priced at par, and
  • the stock's expected capital returns are zero.

Relevant data:

  • The number of shares on issue is 2 million and the number of bonds is 1 million
  • The constant annual dividend per share is $5
  • The bonds have an annual fixed coupon payment of $4
  • 10-year government bonds have a yield of 3% and the market risk premium is 5%
  • The beta of levered equity is 1.6
  • The beta of the bonds is 1.3

Which of the following is the market value of the levered firms assets?

a.

$93.2 million

b.

$102.4 million

c.

$140.9 million

d.

$133.0 million

e.

$112.6 million

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