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# This is a group exercise. There are four tabs to complete. Tab 1 2 3 4 Ch. 16 17 18 19 Topics Stock Valuation Risk and Return Required Rate of...

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There are five tabs on this assignment. Tab Ch. Topics Score Possible Points 1 16 Stock Valuation 3.0 This is a group exercise. 2 17 Risk and Return 3.0 3 18 Required Rate of Return & Beta 3.0 There are four tabs to complete. 4 19 WACC 3.0 Fill in all the gray boxes. 0.0 12.0 Student Names: A firm does not face any taxes and has \$250 million in assets, is currently financed entirely with equity. Equity is worth \$25.00 per share, and book value of equity is equal to market value of equity. Assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: Assets \$250,000,000.00 Current Market Price \$25.00 Number of shares Interest Rate 7.50% Debt % 40.00% Equity % 60.00% Interest STATE RECESSION AVERAGE BOOM Probability 0.30 0.50 0.20 Expected EBIT \$2,500,000.00 \$10,000,000.00 \$22,500,000.00 - Interest EBT -Taxes 0.00% Net Income EPS Expected EPS A firm does not face any taxes and has \$250 million in assets, is currently financed entirely with equity. Equity is worth \$25.00 per share, and book value of equity is equal to market value of equity. Assume that the firm's expected values for EBIT are dependent upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: The firm is considering switching to a 20.00% debt capital structure, and has determined that they would have to pay an 7.50% yield on perpetual debt regardless of whether they change their capital structure. What will be the standard deviation in EPS if they switch to the proposed capital structure? Assets \$250,000,000.00 Current Market Price \$25.00 Number of shares Interest Rate 7.50% Debt % 20.00% Equity % 80.00% Interest STATE RECESSION AVERAGE BOOM Probability 0.30 0.50 0.20 Expected EBIT \$2,500,000.00 \$10,000,000.00 \$22,500,000.00 - Interest EBT -Taxes 0.00% Net Income EPS Expected EPS Standard Deviation A firm has a 25.00% tax rate and has \$250 million in assets, is currently financed entirely with equity. Equity is worth \$25 per share, and book value of equity is equal to market value of equity. Assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: The firm is considering switching to a 20.00% debt capital structure, and has determined that they would have to pay an 7.50% yield on perpetual debt in either event. What will be the level of expected EPS and the standard deviation of EPS? Assets \$250,000,000.00 Current Market Price \$25.00 Number of shares Interest Rate 7.50% Debt % 20.00% Equity % 80.00% Interest STATE RECESSION AVERAGE BOOM Probability 0.30 0.50 0.20 Expected EBIT \$2,500,000.00 \$10,000,000.00 \$22,500,000.00 - Interest EBT -Taxes 25.00% Net Income EPS Expected EPS Standard Deviation A firm has a 25.00% tax rate and has \$250 million in assets, is currently financed entirely with equity. Equity is worth \$25.00 per share, and book value of equity is equal to market value of equity. Assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: The firm is considering switching to a 20.00% debt capital structure, and has determined that they would have to pay an 7.50% yield on perpetual debt in either event. What will be the break-even level of EBIT? Assets \$250,000,000.00 Current Market Price \$25.00 Number of shares without Debt Number of shares with Debt Interest Rate 7.50% Debt % 20.00% Equity % 80.00% Interest Tax Rate 25.00% EBIT Breakeven Show entire document
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