MGFC10mt_Sum2013_Solution.pdf - ANSWER 1 a Common Equity Market Value = S = 10,000,000 x \$30 = \$300,000,000 rs r f s rm r f = 2 1.4(6 =10.4 Debt Market

# MGFC10mt_Sum2013_Solution.pdf - ANSWER 1 a Common Equity...

• Test Prep
• 4
• 100% (2) 2 out of 2 people found this document helpful

This preview shows page 1 - 2 out of 4 pages.

ANSWER 1: a. Common Equity Market Value = S = 10,000,000 x \$30 = \$300,000,000 2 f m s f s r r r r = 2% + 1.4(6%) =10.4% Debt Market Value = B = 100,000 x \$1000 = \$100,000,000 4 7% B r Preferred Stock 2 Market Value = P = 2,000,000 x \$50 = \$100,000,000 p r 3/50 = 0.06 = 6% V = S + B + P = \$300,000,000 + 100,000,000 + 100,000,000 = \$500,000,000 1 3 0.6 5 S V 1 0.20 5 B V 1 0.20 5 P V 1 V P r V B T r V S r r P c B S WACC ) 1 ( 2 = 0.104(0.60) + 0.07(1-0.4)(0.20) + 0.06(0.20) = 0.0828 b. 13 1 1 1 Pr 1 1 1 1 Recov 1 1 t wacc c wacc t wacc c t t wacc wacc wacc r NPV Land Plant NWC ice VariableCost Volume FixedCost T r r Plant SalvageValueofLand TaxOnCapitalGain eryOfNWC T t r r r   25 25 25 1 1 1.0828 \$10,000,000 30,000,000 10,000,000 2000 1000 30,000 20,000,000 1 0.4 0.0828 1 1 1.0828 \$30,000,000 30,000,000 (30,000,000 10,000,000)0.5(0.4) 0.4 25 0.0828 1.0828 NPV  

#### You've reached the end of your free preview.

Want to read all 4 pages?

• Fall '16
• SyedAhmed
• Debt, \$2, \$50, \$390

### What students are saying

• 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.

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

• 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.

Dana University of Pennsylvania ‘17, Course Hero Intern

• 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.

Jill Tulane University ‘16, Course Hero Intern