Here pv is the price of the stock c is the dividend

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Here PV is the price of the stock, C is the dividend per share, and R is the cost of equity. Thus we have: 10 25 0.40 e e e D P R R R Discounting the dividends, we find that the cost of equity needs to be 40%, which is precisely what we found when using MM Proposition II.
13. Using the cost of equity and debt, compute the WACC for the levered firm.
14. What is the value of the levered firm based on discounting the unlevered cash flows at its WACC?
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Questions 15-25 - New and Improved Capital Structure…now with taxes!! 15. Assume now that the firm was once again all equity financed (i.e. before the restructuring), and everything else is the same except that the tax rate was 35%. Compute the income statement for the firm in both states of the world (Hot and Cold). What is the expected dividend per share? 0 70 1
16. Discounting the unlevered cash flows by the cost of equity of the unlevered firm (calculated in #3 above), what is the value of the unlevered firm when there are taxes? What is the price per share? 1
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12 Where the U subscript indicates unlevered. The value of the firm is $1,625. Since there

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