(The following data are required for the next 2 problems (Question 12 and 13.) T
ID: 2797102 • Letter: #
Question
(The following data are required for the next 2 problems (Question 12 and 13.) The ABC company currently has $250,000 market value (and book value) of perpetual debt outstanding carrying a coupon rate of 6 percent. Its earnings before interest and taxes (EBIT are $105,000, and it is a zero-growth company. ABC's current cost of equity is 9.0 percent, and its tax rate is 40 percent. The firm has 20,000 shares of common stock outstanding selling at a price per share of $30,.00 12. What is ABC's current total market value? a. $550,000 b. $650,000 c. $800,000 $850,000 e. $900,000 13. Now assume that ABC is considering changing from its original capital structure to a ne capital structure with 50 percent debt and 50 percent equity. If it makes this change, resulting market value would be $900,000. What would be its new stock price per share? a. $28.5 b. $30.0 S32.5 $34.5 e. $38.5Explanation / Answer
12.
Market Value of equity = 20,000 × $30
= $600,000
Market value of equity is $600,000
Market value of debt = $250,000
Total Market value of firm = $600,000 + $250,000
= $850,000
Total Market value of firm is $850,000.
Option (C) is correct answer.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.