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# fm17 4 - r sL = r sU(r sU r RF(1 T(D/S = 15.625(15.625...

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SOLUTIONS TO END-OF-CHAPTER PROBLEMS 17-1 V L = V U = \$500 million. 17-2 V L = V U + TD= \$800 + 0.35(\$60) = \$821 million. 17-3 V L = V U + ) T 1 ( ) T 1 )( T 1 ( 1 d s C D = \$600 + ) 35 . 0 ( ) 9 . 0 )( 66 . 0 ( 1 \$240 = \$600 + [1 - 0.914]\$240 = \$600 + 0.086(\$240) = \$620.68 million. 17-4 a. b L = b U [1 + (1 - T)(D/S)]. b U = ) S / D )( T 1 ( 1 b L + = ) 5 . 0 / 5 . 0 )( 4 . 0 1 ( 1 8 . 1 + = 6 . 1 8 . 1 = 1.125. b. r sU = r RF + (r M - r RF )b U = 10% + (5%)1.125 = 10% + 5.625% = 15.625%. c. \$2 Million Debt: V L = V U + TD = \$10 + 0.25(\$2) = \$10.5 million.
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Unformatted text preview: r sL = r sU + (r sU- r RF )(1 - T)(D/S) = 15.625% + (15.625% - 10%)(0.75)(\$2/\$8.5) = 15.625 + 5.625% (0.75)(\$2/\$8.5) = 16.62%. \$4 Million Debt: V L = \$10 + 0.25(\$4) = \$11.0 million. r sL = 15.625% + 5.625%(0.75)(\$4/\$7) = 18.04%. \$6 Million Debt: V L = \$10 + 0.25(\$6) = \$11.5 million. r sL = 15.625% + 5.625% (0.75)(\$6/\$5.5) = 20.23%. Answers and Solutions: 17 - 4...
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