S07Assg9soln

S07Assg9soln - FIN 2200 CORPORATION FINANCE Sum 2007...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: FIN 2200 CORPORATION FINANCE Sum 2007 Professors: A. Dua Assignment #9 key 1. Assume an M&M world with no taxes. The risk free rate of return is 4% and the market risk premium is 10%. XYZ Corporation could be financed with debt and equity according to the proportions specified in the table below. Fill in all the missing cells in the table below. Proportion of Equity Financing for XYZ Expected Return on XYZs Equity Expected Return on XYZs Debt XYZs WACC % XYZs Equity Beta XYZs Debt Beta Weighted Average Beta of XYZs securities 100% 16% (no debt) 16% 1.20 (no debt) 1.20 80% 18.7% 5.2% 16% 1.47 0.12 1.20 60% 23.2% 5.2% 16% 1.92 0.12 1.20 50% 26.8% 5.2% 16% 2.28 0.12 1.20 40% 30.1% 6.6% 16% 2.61 0.26 1.20 30% 34.2% 8.2% 16% 3.02 0.42 1.20 20% 40% 10% 16% 3.60 0.60 1.20 10% 52% 12% 16% 4.80 0.80 1.20 5% 54% 14% 16% 5.00 1.00 1.20 0% (no equity) 16% 16% (no equity) 1.20 1.20 Solutions: 100% equity: % 16 ) 1 . ( 2 . 1 04 . ) R R ( R r f M S f S = + =- + = WACC = r = r S =16% 20 . 1 ) 1 . ( 04 . 16 . ) R R ( R WACC firm firm f M firm f = + =- + = 80% equity: % 2 . 5 ) 1 . ( 12 . 04 . ) R R ( R r f M B f B = + =- + = % 16 187 . 1 8 . 052 . 1 2 . r S B S r S B B WACC S B = + = + + + = 20 . 1 ) 1 . ( 04 . 16 . ) R R ( R WACC firm firm f M firm f = + =- + = 60% equity: % 2 . 5 ) 1 . ( 12 . 04 . ) R R ( R r f M B f B = + =- + = FIN 2200 CORPORATION FINANCE Sum 2007 Professors: A. Dua Assignment #9 key % 16 232 . 1 6 . 052 . 1 4 . r S B S r S B B WACC S B = + = + + + = 92 . 1 ) 1 . ( 04 . 232 . ) R R ( R r s s f M s f S = + =- + = 20 . 1 ) 1 . ( 04 . 16 . ) R R ( R WACC firm firm f M firm f = + =- + = 50% equity: % 2 . 5 ) 1 . ( 12 . 04 . ) R R ( R r f M B f B = + =- + = % 16 268 . 1 5 . 052 . 1 5 . r S B S r S B B WACC S B = + = + + + = 20 . 1 ) 1 . ( 04 . 16 . ) R R ( R WACC firm firm f M firm f = + =- + = 40% equity: % 1 . 30 r ) 066 . 16 . ( 4 . 6 . 16 . ) r r ( S B r r S B S =-+ =-+ = 61 . 2 ) 1 . ( 04 . 301 . ) R R ( R r S S f M S f S = + =- + = % 16 301 . 1 4 . 066 . 1 6 . r S B S r S B B WACC S B = + = + + + = FIN 2200 CORPORATION FINANCE Sum 2007 Professors: A. Dua Assignment #9 key 20 . 1 ) 1 . ( 04 . 16 ....
View Full Document

Page1 / 10

S07Assg9soln - FIN 2200 CORPORATION FINANCE Sum 2007...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online