Answer:
a. What is the total market value of the firm without leverage?
- = $2 million / 50% = $4 million
b. Suppose you borrow $1.0 million. According to MM, what fraction of the firm's equity will you need to sell to raise the additional $1.0 million you need?
c. What is the value of your share of the firm's equity in cases (a) and (b)?
- a) = $4 x 50% = $2 million
- b) = $2 million
Explanation:
if successful price = $30 million
if unsuccessful price = $0
investment required = $2 million
in exchange of 50% of the firm
if you borrow $1 million, you will have to give up 33.33% of the company in exchange for the other $1 million needed
= $1 / ($4 - $1) = $1 / $3 = 33%
according to Modigliani and Miller (MM), the value of a firm is determined by its profit.
Higher revenues – demand from positive consumer support.
Improved brand and business awareness and recognition.
Better employee motivation and recruitment.
Answer:
$75,000
Explanation:
Calculation for the annual dividend on the preferred stock
Using this formula
Annual Dividend= Number of shares × Par value × Dividend %
Let plug in the formula
Annual Dividend= 10,000 shares × $125 × 6%
Annual Dividend= $75,000
Therefore the annual dividend on the preferred stock will be $75,000
Answer:
A. free-market conditions.
Explanation:
Free market are the condition in the market, which is not governed by the government and people are free to exchange their goods and services with others and market are solely operated by the law of demand and supply. Government does not interfere in the functioning of market and market is regulated by private players or entrepreneur.
Following are the disadvantages of free market condition:
- Profit is the only motive remain.
- High rate of unemployment and inquality.
- High chances of monopoly.
