Question
Week 11 Workshop 1.FIN222 Ltd owns assets that will be worth $200,000 in one year. The current risk-free rate is 4%, and the cost of
Week 11 Workshop
1.FIN222 Ltd owns assets that will be worth $200,000 in one year. The current risk-free rate is 4%, and the cost of capital is 9%. Assume the perfect capital market.
a.If FIN222 Ltd is unlevered, what is the current market value of its equity today?
b.Instead, assume that FIN222 is levered. FIN222 Ltd has debt with a face value of $90,000 due in one year. According to Modigliani and Miller, what is the value of the equity today in this case?
c.What is the expected return on the equity without leverage?
d.What is the expected return on the equity with leverage?
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Fundamentals Of Multinational Finance
Authors: Michael Moffett, Arthur Stonehill, David Eiteman
6th Edition
0134472136, 978-0134472133
