assignment 5 - FINC 727 Corporate transactions and business...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
FINC 727: Corporate transactions and business valuation Professor Robert Hansen 1 Assignment 5. HLTs BLAZER TELECOM’s perpetual earnings before interest and taxes is $400, the corporate tax rate is 40%. To help finance the project BLAZER will use a debt-to-equity ratio of 0.75. The debt will be priced to yield the risk-free rate of interest. BLAZER's depreciation expenses are not tax deductible and just offset capital expenditures in each year, and changes in working capital are zero. BLAZER has a 100% payout policy. We know the risk-free interest rate is 8% and the market premium (market rate less the risk-free rate) is 8.5%. We don’t know BLAZER's asset beta, but we believe Comp Co.’s assets have the same risk as our project. We also know that Comp’s debt is $13,945 and the market value of its equity is $7,000, their tax rate is 36%, their debt beta is 0.3725, and their equity beta is known to be 1.80. BLAZER also wants to add a short term layer of “tier 2 debt”, initially $1000 of junior, risky debt to the financing, whose beta is 0.50, accompanied by a stock repurchase for
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern