WACC wasn\'t given, only the occ was. The answers are: a. D+E = 748.1429, r(e) =
ID: 2614746 • Letter: W
Question
WACC wasn't given, only the occ was.
The answers are:
a. D+E = 748.1429, r(e) = 0.1712,
b. r(a) = o.1531
Question 2. The real assets of Basic Co. generate cash flows of $92 million per year. The value of debt is $260 million, the return on debt is 5%, and the coupon rate equals the yield on all debt issues. Interest is paid annually. The tax rate is 35%. a. Suppose the OCC of real assets is 14% and the Standard ITS Formulas are valid. Calculate the value of the firm and the return on equity b. Suppose instead that the value of the firin is $820 million, the return on equity is 18%, and annual interest payments grow at 1% per year. Calculate the OCC of real assets.Explanation / Answer
ANSWER:
a) Suppose the OCC of real assets is 14% and the Standard ITS Formulas are valid. Calculate the value of the firm and the return on equity.
RETURN ON EQUITY
b) Suppose instead that the value of the firm is $820 million, the return on equity is 18%, and annual interest payments grow at 1% per year. Calculate the OCC of real assets.
Value of the firm Cash flow per year $ 92.00 return on debt $ 12.74 Total cash inflow $ 104.74 OCC 14% Value of the firm $ 748.14 =$104.74/14%Related Questions
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