Alpha Corporation and Beta Corporation are identical in every way except their capital structures. Alpha Corporation,...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Alpha Corporation and Beta Corporation are identical in every way except their capital structures. Alpha Corporation, an all-equity firm, has 16,000 shares of stock outstanding, currently worth $20 per share. Beta Corporation uses leverage in its capital structure. The market value of Beta's debt is $66,000 and its cost of debt is 8 percent. Each firm is expected to have earnings before interest of $76,000 in perpetuity. Neither firm pays taxes. Assume that every investor can borrow at 8 percent per year. a. What is the value of Alpha Corporation? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b. What is the value of Beta Corporation? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) c. What is the market value of Beta Corporation's equity? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) d. How much will it cost to purchase 25 percent of each firm's equity? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) e. Assuming each firm meets its earnings estimates, what will be the dollar return to each position in part (d) over the next year? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) a. Value of Alpha b. Value of Beta C. Market value of Beta's equity d. Alpha Beta e. Alpha Beta Alpha Corporation and Beta Corporation are identical in every way except their capital structures. Alpha Corporation, an all-equity firm, has 16,000 shares of stock outstanding, currently worth $20 per share. Beta Corporation uses leverage in its capital structure. The market value of Beta's debt is $66,000 and its cost of debt is 8 percent. Each firm is expected to have earnings before interest of $76,000 in perpetuity. Neither firm pays taxes. Assume that every investor can borrow at 8 percent per year. a. What is the value of Alpha Corporation? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b. What is the value of Beta Corporation? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) c. What is the market value of Beta Corporation's equity? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) d. How much will it cost to purchase 25 percent of each firm's equity? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) e. Assuming each firm meets its earnings estimates, what will be the dollar return to each position in part (d) over the next year? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) a. Value of Alpha b. Value of Beta C. Market value of Beta's equity d. Alpha Beta e. Alpha Beta
Expert Answer:
Answer rating: 100% (QA)
a Value of Alpha corp 1600020 b when there is no taxes as per Modigliani Miller Propositi... View the full answer
Related Book For
Corporate Finance Core Principles And Applications
ISBN: 9781260571127
6th Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
Posted Date:
Students also viewed these general management questions
-
Alpha Corporation and Beta Corporation are identical in every way except their capital structures. Alpha Corporation, an all-equity firm, has 21,000 shares of stock outstanding, currently worth $23...
-
Alpha Corporation and Beta Corporation are identical in every way except their capital structures. Alpha Corporation, an all-equity firm, has 15,000 shares of stock outstanding, currently worth $30...
-
Alpha Corporation and Beta Corporation are identical in every way except their capital structures. Alpha Corporation, an all-equity firm, has 18,000 shares of stock outstanding, currently worth $35...
-
Brandon Stroud was driving a golf car made by Textron, Inc., to transport guests at Christmas party. The golf car did not have lights, but Textron did not warn against using it on public roads at...
-
Pearson Company owns 90% of the outstanding common stock of Spring Company. On January 1, 2011, Spring Company sold equipment to Pearson Company for $200,000. Spring Company had purchased the...
-
Beru.com recently raised $5 million with a pre-money value of $9 million. They are seeking to raise another $6 million. What is the largest fraction of the firm they can offer and avoid a down round?
-
What electronic information is discoverable?
-
How would you evaluate the work that Niele has performed to date? As Sage Niele, the newly appointed Vice President of Operations and Chief Financial Officer for the Midsouth Chamber of Commerce...
-
There are an abundance of abandoned trash and debris in America. Elements: Laziness, neglect, carelessness Issues: People of all ages in America producing high levels of waste without care for impact...
-
1. How would you describe Danielle Oviedo's approach to leadership? 2. What would you predict about Danielle's future success as a leader? Why? 3. In what ways, if any, does Danielle function as a...
-
Suppose that the current exchange rate ($/Euro) is 1.40. How much would it cost a U.S. steel importer to purchase steel from a European producer that wants to sell the steel for 1,600 euros? 1,142.86...
-
Question 2 of 7 Calculate the indicated probabilities, assuming that Z is a continuous random variable that follows a standard normal distribution: Standard Normal Distribution Table a. P(Z1.46) ==...
-
1. What are TWO (2) Digital Marketing tools that will be most effective to achieve the main objective of the marketing plan for the new shoe, briefly describing how On Running would use each tool and...
-
A new Fluorescent light to replace incandescent bulbs has come on the market. The box says it has an average life of 8,000 hours with a standard deviation of 900 hours. a) What is the probability...
-
1 . Peachtree Company borrows $ 4 0 , 0 0 0 from the local bank at 7 % interest. The term of the note is 6 years, and the annual payments remain constant at $ 8 , 3 9 2 . Determine the decrease in...
-
creative, innovative, or particularly effective facility management practice. Describe your example - what is the purpose? What makes it creative, innovative, or particularly effective? What would it...
-
Analyzing the time complexity (Big-Oh) for the following code: for (j = 0; j
-
The MIT Sloan School of Management is one of the leading business schools in the U.S. The following table contains the tuition data for the masters program in the Sloan School of Management. a. Use...
-
Perkins, Inc., is considering an investment of $730,000 in an asset with an economic life of five years. The firm estimates that the nominal annual cash revenues and expenses at the end of the first...
-
Layton Corp. has a $2,000 par value bond outstanding with a coupon rate of 4.6 percent paid semiannually and 13 years to maturity. The yield to maturity of the bond is 3.8 percent. What is the dollar...
-
Suppose the spot and six-month forward rates on the Norwegian krone are Kr 8.53 and Kr 8.61, respectively. The annual risk-free rate in the United States is 3.2 percent, and the annual risk-free rate...
-
Explain the difference between the Expenses tab and the Items tab in the Write Checks window.
-
How should you account for advanced deposits received on customer orders?
-
Are time sheets required for QuickBooks Accountant to process payroll?
Study smarter with the SolutionInn App