{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Ch16_Extra+Problems - Problems for Ch.16 1 The Kelly Co and...

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

View Full Document Right Arrow Icon
Problems for Ch.16 1. The Kelly Co. and the Green Co. are identical in every aspect except that Kelly is not levered, while Green has $2,000,000 in 12% bonds outstanding. There are no taxes and capital markets are perfect. The valuation of the firms is the following: Kelly Green EBIT…………………………………$ 600,000 $ 600,000 Interest ……………………………….. EBT (NI)…………………………….. R E ……………………………………. 15% 16% E……………………………………… D…………………………………….. V…………………………………….. R A …………………………………… D/E………………………………….. a) Fill in the above blank fields b) You own 10% of Green’s common stock. Show the process and amount by which you could reduce your outlay (improve your investment) through arbitrage. What is the cash flow (return) before and after? c) When will the arbitrage process cease?
Background 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 ]}