FIN 516 WEEK 2 HOMEWORK ASSIGNMENT

FIN 516 WEEK 2 Problem 14.11 Based on Chapter 14 WACC and Modigiani& Miller Extension Models With Growth Assumptions

Consider the entrepreneur described in Section 14.1 (and referenced in Tables 14.1-14.3). Suppose she funds the project by borrowing $750 rather than $500. 
a.	According to MM Proposition I, what is the value of the equity? What are its cash flows if the economy is strong? What are its cash flows if the economy is weak? 
b.	What is the return of the equity in each case? What is its expected return? 
c.	What is the risk premium of equity in each case? What is the sensitivity of the levered equity return to systematic risk? How does its sensitivity compare to that of unlevered equity? How does its risk premium compare to that of unlevered equity? 
d.	What is the debt-equity ratio of the firm in this case? 
e.	What is the firm- WACC in this case? 


Problem 14-18 Based on Chapter 14: WACC and Modigliani &Miller Extension Models With Growth Assumptions

In mid-2012, AOL Inc. had $100 million in debt, total equity capitalization of $3.1 billion, and an equity beta of 0.90 (as reported on Yahoo! Finance). Included in AOL- assets was $1.5 billion in cash and risk-free securities. Assume that the risk-free rate of interest is 3% and the market risk premium is 4%. 
a.	What is AOL- enterprise value? 
b.	What is the beta of AOL- business assets? 
c.	What is AOL- WACC? 

 
Problem 15-15 Based on Chapter 15:Debt and Taxes

Acme Storage has a market capitalization of $100 million and debt outstanding of $40 million. Acme plans to maintain this same debt-equity ratio in the future. The firm pays an interest rate of 7.5% on its debt and has a corporate tax rate of 35%. 
a.	If Acme- free cash flow is expected to be $7 million next year and is expected to grow at a rate of 3% per year, what is Acme- WACC? 
b.	What is the value of Acme- interest tax shield?

Answer Detail

Get This Answer

Save Time & improve Grades

  • Questions Asked 685087
  • Experts 5361
  • Total Answered 659177

Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!

Our Amazing Features

  • Plagiarism Free Work

    Our experts provide 100 % original and customized work On time Delivery

  • 24*7 Customer Support

    We provide 24*7 online customer supports via online chat or email

  • Cover All Subject

    JQA is one stop solution for all subject’s Assignment. We can provide assignment help for almost all subjects.

  • Best Industry experts

    We have 1000+ PHD and Post Graduate experts.

Refer Just 5 Friends to Earn More than $1000

  • Your Approx Earning

    USD 2350/year

Your Custom Referral Link:

Hire a tutor

Assignment hero

USA

I am an experienced tutor of 7+ years in all math, physics, and Spanish, SAT, and ACT tutoring. I love working with students and seeing them improve on and grasp concepts!

Guru

USA

Need help in Maths and science ? Look no further . contact me so i can help you . i have been a academic tutor for 10 years . Hire me for help in assignments.

Vikas

USA

After 13 years of working with students across the country, we have the experience and knowledge to provide the best possible academic support for your academics.

Rgaurav

India

I have experience teaching AP Calculus AB and BC, Algebra I, Algebra II, Trigonometry, SAT Math Preparation, and Geometry. I have tutored students ranging from 8th grade to college students.

Invite Tutor