Schoen Industries pays interest of $3 million each year on bonds with an average coupon rate of

Question:

Schoen Industries pays interest of $3 million each year on bonds with an average rate of 7.5%. The firm has 4.5 million shares of stock outstanding and pays out 100% of earnings in dividends. Earnings per share (EPS) are $3.50. Schoen’s is 12%. Calculate the firm’s total value (the value of its debt plus that of its equity) under the assumptions of Modigliani and Miller’s simplest model (i.e., that there are no taxes and no transactions costs in financial markets)

Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the... Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...