1 Assume that Lothbrok Industries exists in a Modigliani and Miller (MM) world with corporate taxes, but...
Question:
1
Assume that Lothbrok Industries exists in a "Modigliani and Miller" (MM) world with corporate taxes, but all other MM assumptions hold. Lothbrok forecasts that its EBIT will not grow in future years, that is, its most recent EBIT will become a perpetuity. Lothbrok has an unlevered cost of equity (rsU) of 10.2%, its cost of debt is 7.1% and its stock price is at $6.40. Assume the book value of short and long-term debt equals its market value. Using the above information and the financials provided on Lothbrok, calculate Lothbrok's cost of equity?
Question 2
Using information provided before (Question 1 and in Lothbrok’s financial statements), calculate the Value (VL) of Lothbrok Industries Ltd.
Fundamentals of Financial Management
ISBN: 978-0324664553
Concise 6th Edition
Authors: Eugene F. Brigham, Joel F. Houston