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Darina [25.2K]
3 years ago
15

Tool Manufacturing has an expected EBIT of $72,000 in perpetuity and a tax rate of 24 percent. The company has $128,500 in outst

anding debt at an interest rate of 6.9 percent and its unlevered cost of capital is 11 percent. What is the value of the company according to MM Proposition I with taxes? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Business
1 answer:
harkovskaia [24]3 years ago
4 0

Answer:

The value of the company according to MM Proposition I with taxes is $528294.55

Explanation:

value of unlevered firm  = EBIT(1-T)/Ru

                                        = 72000*(1 - 24%)/11%  

                                       = 497454.55

value of levered firm = 497454.55 + 128500*0.24

                                   = $528294.55

Therefore, The value of the company according to MM Proposition I with taxes is $528294.55

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Answer:

b. 8.92%

Explanation:

Calculation for the portfolio expected return

Using this formula

Portfolio expected return = (Stock A allocated fund x Stock A expected return) + (Stock B allocated fund x Stock B expected return)

Let plug in the formula

Portfolio expected return= (54%*8%) + (46%*10%)

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Answer:

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