English Deutsch Français Italiano Español Português 繁體中文 Bahasa Indonesia Tiếng Việt ภาษาไทย
All categories

A company generates a constant perpetual cash flow of 100million per annum, pre corporate tax which is paid at a rate of 35%. The company is part financed by riskless debt with a current value of £250million. This debt pays a constant perpetual interest stream of £15million per annum. If the company were financed solely by equity it would have a market value of £650million.

What is the required rate of return to equity given company's current level of debt? Show all necessary calculations.

2007-01-14 05:51:50 · 7 answers · asked by eradicator80 1 in Business & Finance Other - Business & Finance

THIS IS NOT A HOMEWORK ASSIGNMENT. THIS IS A QUESTION BELONGING TO MY SUBJECT PAST PAPER

2007-01-14 07:02:09 · update #1

7 answers

Value of perpetuity = (Coupon)/(r-g)
g = 0
r = WACC
Value = (100m*/(WACC-0%)

Assume WACC = 100% equity
K(e) = cost of equity
650m = [100m/K(e)]
K(e) = 100m/650m = 15.385%

2007-01-15 03:33:15 · answer #1 · answered by csanda 6 · 0 0

This sounds like a homework problem that you're trying to get someone else to do for you. Therefore, I'm not going to go through all the calculations so that you'll just copy it and submit as your own. That would be cheating on everyone's part and is therefore highly unethical.

Howver, I also believe in helping people in need. Therefore, I've listed nelow the links to text passages that will help you review the materials that you'll need to solve the problem.

2007-01-14 06:29:03 · answer #2 · answered by Anonymous · 0 0

The necessary equation can be determined by using the identity (1-x)(1 + x + x^2 + x^3 +. .. + x^(n-1)) = 1-x^n.

2016-05-24 00:48:14 · answer #3 · answered by ? 4 · 0 0

I am not that hard up for points to be doing someone else's HW

2007-01-14 13:19:20 · answer #4 · answered by Prav 4 · 0 0

actaully could u plz repeat that briefly

2007-01-14 06:31:06 · answer #5 · answered by skhr 3 · 0 0

i am sorry i dono d ans.....
sorry for makin u to read dis ans

2007-01-14 05:55:25 · answer #6 · answered by vextraker 1 · 0 0

bug up

2007-01-14 06:01:32 · answer #7 · answered by Anonymous · 0 0

fedest.com, questions and answers