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Why is the change in E/V and D/V not equal to the change in D/V? For instance, what formula am I supposed to use (and
Why is the change in E/V and D/V not equal to the change in D/V?
For instance, what formula am I supposed to use (and how am I supposed to calculate this formula's inputs) to arrive at E/V = 0.9091 and D/V = 0.0909, given a D/E of 0.1.
The company is currently very conservative with its leverage and has a D/E ratio of 10%. The beta of the firm is 1.05, the marginal tax rate is 34%, the risk-free rate is 8%, and the market risk premium is 5.5%. One of the directors is an investment banker and he has provided you with the following information: In addition, this year's EBIT = $120 million, Depreciation = $10.5 million, capital spending = $15 million, and the growth rate on free cash flows is estimated to be about 6% per year in perpetuity. asset be EBIT -taxes EAT + depr -capex FCF rm -rf 120 40.8 79.2 10.5 -15 74.7 0.9 85 8.0 % 5.5 % 34.0% DIE E/ V DIV Rd 0.1 0.909 1 0.0 90 9 0 .103 0.2 0.8333 0.16670.107 0.3 0.7 69 2 0.2308 0.113 0.4 0.7143 0.2857 0.12 0.5 0.6 667 0.33330.126 Beta Re 0.34 1.050 13.7 8% 0.34 1.115 14.13% 0.34 1.180 14.49% 0.34 1.245 14.8 5% 0.34 1.310 15.21% WACC 13.141 % 12.954% 12.8 67% 12.868 % 12.909% Value of Firm 110 8.8 8 1138.6 3 1153.03 1152.86 1146.10Step by Step Solution
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