Elbur Co. pays 40% in corporate taxes and is financed entirely by common stock with a 1,000
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Question:
Elbur Co. pays 40% in corporate taxes and is financed entirely by common stock with a 1,000 shares outstanding trading at $100 per share. Elbur's return on assets is equal to 20%. Elbur has only assets-in-place and, thus, does not grow. The risk-free debt yields 5% and the market return is equal to 12.5%. Let EPS stand for earnings per share, E for equity, and D for debt.
(1) Calculate:
(i) In this environment, what ecient portfolio (describe the porfolio's weights) returns 8%?
(ii) If the volatility of such ecient portfolio is equal to 10%, what is Elbur's market risk?
(iii) Elbur's (P/EPS) ratio;
(iv) Elbur's EPS:
Related Book For
Principles of Corporate Finance
ISBN: 978-0072869460
7th edition
Authors: Richard A. Brealey, Stewart C. Myers
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