Alpha Corporation and Beta Corporation are identical in every way except their capital structures. Alpha Corporation,...

  

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Alpha Corporation and Beta Corporation are identical in every way except their capital structures. Alpha Corporation, an all-equity firm, has 9,400 shares of stock outstanding, currently worth $22 per share. Beta Corporation uses leverage in its capital structure. The market value of Beta's debt is $46,000, and its cost of debt is 12 percent. Each firm is expected to have earnings before interest of $48,000 in perpetuity. Neither firm pays taxes. Assume that every investor can borrow at 12 percent per year. Requirement 1: What is the value of Alpha Corporation? (Do not include the dollar sign ($).) Value of Alpha Requirement 2: What is the value of Beta Corporation? (Do not include the dollar sign ($).) Value of Beta Requirement 3: What is the market value of Beta Corporation's equity? (Do not include the dollar sign ($).) Value of Beta's equity Requirement 4: How much will it cost to purchase 18 percent of each firm's equity? (Do not include the dollar signs ($).) Cost for Alpha Cost for Beta LA LA Requirement 5: Assuming each firm meets its earnings estimates, what will be the dollar return to each position in requirement 4 over the next year? (Do not include the dollar signs ($). Round your answers to the nearest whole dollar amount. (e.g., 32)) Return on Alpha Return on Beta 69 69 Alpha Corporation and Beta Corporation are identical in every way except their capital structures. Alpha Corporation, an all-equity firm, has 9,400 shares of stock outstanding, currently worth $22 per share. Beta Corporation uses leverage in its capital structure. The market value of Beta's debt is $46,000, and its cost of debt is 12 percent. Each firm is expected to have earnings before interest of $48,000 in perpetuity. Neither firm pays taxes. Assume that every investor can borrow at 12 percent per year. Requirement 1: What is the value of Alpha Corporation? (Do not include the dollar sign ($).) Value of Alpha Requirement 2: What is the value of Beta Corporation? (Do not include the dollar sign ($).) Value of Beta Requirement 3: What is the market value of Beta Corporation's equity? (Do not include the dollar sign ($).) Value of Beta's equity Requirement 4: How much will it cost to purchase 18 percent of each firm's equity? (Do not include the dollar signs ($).) Cost for Alpha Cost for Beta LA LA Requirement 5: Assuming each firm meets its earnings estimates, what will be the dollar return to each position in requirement 4 over the next year? (Do not include the dollar signs ($). Round your answers to the nearest whole dollar amount. (e.g., 32)) Return on Alpha Return on Beta 69 69

Answer rating: 100% (QA)

To solve these requirements well follow the steps using the information given in the first image Requirement 1 What is the value of Alpha Corporation Alpha Corporation is an allequity firm so its valu... View the full answer