Assignement 7 Corpo

Assignment 7: Sections 9 - Capital Budgeting with Financial leverage 1.a) Arden adjusts its debt perpetually : rwacc= ru dtc (rd) = 9% - (0.5/1.5)(0.40)*5%= 8.333% Arden adjusts its debt once per grade : rwacc= ru dtc (rd + ?(ru-rd)) = 8.308% b) In the case where Arden adjusts its debt continuously : VL= 10/(0.0833+0.02) = $96.8 cardinal In the case where Arden adjusts its debt once per year : We obtain : VL= $97 million 2.a) APV method acting : Vu= 10/10% = carbon million PV(ITS)= 0.40*40 million = 16 million VL= APV= deoxycytidine monophosphate +16 = $116 million And so E= 116 40 = $76 million b) WACC method : rwacc= ru dtc (rd + ?(ru-rd))= ru dtc (rd + ru-rd))= ru (1- dtc) = 8.62% VL= 10/8.62%= $116 million c) re = ru + (Ds/E)(ru- rD)= 11.579% d) FTE method : FCFE= FCF- after treat pursuit + net new debt= 10- 5%(1- 0.40)40= 8.8 So E= 8.8/0.116 = $76 million 3.a) FCF= cc0*0.6= $1 200 CAPM= 5%+ 1.11* (11% - 5%)= 11.66% Growth of 3% per year So V(all faithfulness) =1 200/(0.1166-0.03)=$13 857 b) The post paid esteem equal the bump free run of 5%. The firm has $5000 of debt the next year. So the interest wages go forth be $250. If AMCs debt is expected to grow by 3% per year, the interest payment is expected to rate at the uniform rate.

c) The expected notify of the next years task shield : 250*40%= $100 Rate of growth : 3% Since the of import of the tax shield risky 1.11 the appropriate discount rate is : 5%+ 1.11+ (11% - 5%)= 11.67% PV(interest tax shields)= 100/(0.1166- 0.03)= $1155 d) V(AMC)= 13857+1155= $15012 the market value o f AMCs equity V-D=15012-5000= $10012 e) V! (AMC)= 1200/(rwacc-0.03)= $15000 So WACC=11% f) return on the debt : 5% value of the debt : $5000 value of firm is $15000 so the value of the equity is 15000-5000= $10000 So 11%= (10000/15000)*re + (5000/15000)*5%*(1-0.4) ? re= 15% 4.a) E=50*2.5B= $125B D=0.20*125B=$25B VL=E+D= $150B (CAPM) Equity of cost capital=4%+ 0.5(10%- 4%)= 7% WACC=(125/150)*7% + (25/150)*4.2%*(1- 35%)= 6.29%...If you want to get a luxuriant essay, order it on our website: BestEssayCheap.com

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