F&M Inc. (FMI) currently has an ROE of 8%, total assets of $1000 and a dividend payout
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Question:
F&M Inc. (FMI) currently has an ROE of 8%, total assets of $1000 and a dividend payout ratio of 100%. FMI\\\'s beta is currently equal to 1 and they have no debt. The marginal corporate income tax rate is equal to 0%. The long-term risk free rate is currently equal to 2% and the expected stock market risk premium is equal to 6%. If FMI increase their debt-to-equity ratio to 1 with an after-tax cost of debt equal to 2% and simultaneously reduce their dividend payout ratio to 46% then FMI\\\'s new intrinsic value of equity will be equal to:
1,$640
2,$460
3,$1460
4,$500
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