James Holliday_Week2Assignment_FI516

James Holliday_Week2Assignment_FI516 - = 8.683 V...

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Problem 15-9 a) 50% Debt: WACC = (0.5)(10%)(1-0.15) + (0.5)(14%) = 11.25% V= [($13.24)(1-0.15)/11.25%] = $100,000,000 b) 70% Debt: WACC = (0.7)(12%)(1-0.15) + (0.3)(16%) = 11.94% V= [($13.24)(1-0.15)/11.94%] = $94,255,000 c) 30% Debt: WACC = (0.3)(8%)(1-0.15) + (0.7)(13%) = 11.14% V= [($13.24)(1-0.15)/11.14%] = $101,023,000 Problem 15-10 a) Unlevered beta = 1.0/[1+(1-0.40)(20/80)] = 0.87 b) 40% Debt: bL = (0.87)[1 + 0.6(40%/60%)] = 1.218
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r S = 6 + 1.218(4) = 10.872% c) WACC = (0.4)(9%)(1-0.4) + (0.6)(10.872%)
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Unformatted text preview: = 8.683% V = ($14.93)(1-0.4)/8.683% = $103,188,000 Problem 26-8 a) Vu = $500,000/(0.13 - 0.09) = $12,500,000 b) VL = $12,500,000 + [(0.07)(0.40)($5,000,000)/(0.13-0.09)] = $16,000,000 rsL = 0.13 + (0.13-0.07)[5,000,000/(16,000,000-5,000,000)] = 15.7% c) VL = $12,500,000 + ($5,000,000)(0.40) = $14,500,000 rsL = 0.13+(0.13-0.07)(1-.40)[(5,000,000)/(14,500,000-5,000,000)] = 14.9% d) VL is greater when there is growth than under MM since there is no growth....
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James Holliday_Week2Assignment_FI516 - = 8.683 V...

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