The book value of a firm's debt is 600 and that of its equity is 800. The
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Question:
The book value of a firm's debt is 600 and that of its equity is 800. The market value of equity is 1600 and debt has a market value equal to the book value. Assume also that the net operating income of the firm is 80, the interest rate on its debt is 10% and the marginal corporate tax rate is 50%. What is the ROC of the firm? Choose the closest number (unless you think it cannot be determined).
a.2.27%
b.3.64%
c.5%
d.5.71%
e.It cannot be determined from the data
Related Book For
Introduction to Corporate Finance What Companies Do
ISBN: 978-1111222284
3rd edition
Authors: John Graham, Scott Smart
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