For the purposes of the below questions, assume that changes in working capital are negligible and that capital spending and depreciation are of the same magnitude and therefore cancel each other out. This is the assumption we made in most of the videos to focus on the valuation effects of loans and taxes and to discover the key differences between alternative valuation methods.

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Q11. You are thinking of opening a consulting company. You have projected an EBIT of $2 million starting next year (t = 1) with a growth rate of 3% for the foreseeable future thereafter. This endeavor will require a substantial investment and you will need to convince investors to provide you with the capital to do so. You will invest part of your own money, convincing other investors, of course, it will be useful to assess your own investment decision. A critical part of your analysis is calculating the present value of the business's cash flows. His research has revealed the following information: The equity of similar consulting firms has an average beta of 2.40, and the average debt-to-equity ratio in this industry is close to zero. The risk-free rate is 3, 20% and the expected market risk premium (the average difference between the market return and the risk-free rate) is 4.50%. The corporate tax rate is 35% and interest payments on the debt are tax deductible. What is the value of your company assuming that it is financed exclusively with equity? (Enter the nearest rounded dollar number without any $ signs or commas.)

Q12. You are thinking of opening a consulting company. You have projected an EBIT of $2 million starting next year (t = 1) with a growth rate of 3% for the foreseeable future thereafter. This endeavor will require a substantial investment and you will need to convince investors to provide you with the capital to do so. You will invest part of your own money, convincing other investors, of course, it will be useful to assess your own investment decision. A critical part of your analysis is calculating the present value of the business's cash flows. His research has revealed the following information: The equity of similar consulting firms has an average beta of 2.40, and the average debt-to-equity ratio in this industry is close to zero. The risk-free rate is 3, 20% and the expected market risk premium (the average difference between the market return and the risk-free rate) is 4.50%. The corporate tax rate is 35% and interest payments on the debt are tax deductible. You decide to start the business and issue 500,000 shares to finance a venture capital, the price per share will be (Enter the number with up to two decimal places but without any $ sign or comma):

Q13. You are thinking of opening a consulting company. You have projected an EBIT of $2 million starting next year (t = 1) with a growth rate of 3% for the foreseeable future thereafter. This endeavor will require a substantial investment and you will need to convince investors to provide you with the capital to do so. You will invest part of your own money, convincing other investors, of course, it will be useful to assess your own investment decision. A critical part of your analysis is calculating the present value of the business's cash flows. His research has revealed the following information: The equity of similar consulting firms has an average beta of 2.40, and the average debt-to-equity ratio in this industry is close to zero. The risk-free rate is 3, 20% and the expected market risk premium (the average difference between the market return and the risk-free rate) is 4.50%. The corporate tax rate is 35% and interest payments on the debt are tax deductible. You decide to start the business and issue 500,000 shares to finance a capital venture. Shortly after hearing about his new business, his bank is willing to extend him a $3.50 million long-term loan/debt in perpetuity, provided he can pay an 8% interest rate. Assuming that the chances of bankruptcy are negligible with this amount of outstanding debt on your balance sheet, if you take this debt and withdraw shares using the debt, the value of the business will be: The corporate tax rate is 35% and interest payments on the debt are tax deductible. You decide to start the business and issue 500,000 shares to finance a capital venture. Shortly after learning of his new business, his bank is willing to extend him a $3.50 million long-term loan/debt in perpetuity, provided he can pay an 8% interest rate. Assuming that the chances of bankruptcy are negligible with this amount of outstanding debt on your balance sheet, if you take this debt and withdraw shares using the debt, the value of the business will be: The corporate tax rate is 35% and interest payments on the debt are tax deductible. You decide to start the business and issue 500,000 shares to finance a capital venture. Shortly after learning of his new business, his bank is willing to extend him a $3.50 million long-term loan/debt in perpetuity, provided he can pay an 8% interest rate. Assuming that the chances of bankruptcy are negligible with this amount of outstanding debt on your balance sheet, if you take this debt and withdraw shares using the debt, the value of the business will be: Your bank is willing to extend you a $3.50 million long-term loan/debt in perpetuity, as long as you can pay an 8% interest rate. Assuming that the chances of bankruptcy are negligible with this amount of outstanding debt on your balance sheet, if you take this debt and withdraw shares using the debt, the value of the business will be: Your bank is willing to extend you a $3.50 million long-term loan/debt in perpetuity, as long as you can pay an 8% interest rate. Assuming that the chances of bankruptcy are negligible with this amount of outstanding debt on your balance sheet, if you take this debt and withdraw shares using the debt, the value of the business will be?

Q14. You are thinking of opening a consulting company. You have projected an EBIT of $2 million starting next year (t = 1) with a growth rate of 3% for the foreseeable future thereafter. This endeavor will require a substantial investment and you will need to convince investors to provide you with the capital to do so. You will invest part of your own money, convincing other investors, of course, it will be useful to assess your own investment decision. A critical part of your analysis is calculating the present value of the business's cash flows. His research has revealed the following information: The equity of similar consulting firms has an average beta of 2.40, and the average debt-to-equity ratio in this industry is close to zero. The risk-free rate is 3, 20% and the expected market risk premium (the average difference between the market return and the risk-free rate) is 4.50%. The corporate tax rate is 35% and interest payments on the debt are tax deductible. You decide to start the business and issue 500,000 shares to finance a capital venture. Shortly after hearing about his new business, his bank is willing to extend him a $3.50 million long-term loan/debt in perpetuity, provided he can pay an 8% interest rate. Realizing that the chances of bankruptcy are negligible with this amount of outstanding debt on your balance sheet, and that the debt tax shield risk is the same as the debt risk, you are seriously considering taking on the debt and use it in its entirety. withdraw some shares.

Q15. You are thinking of opening a consulting company. You have projected an EBIT of $2 million starting next year (t = 1) with a growth rate of 3% for the foreseeable future thereafter. This endeavor will require a substantial investment and you will need to convince investors to provide you with the capital to do so. You will invest part of your own money, convincing other investors, of course, it will be useful to assess your own investment decision. A critical part of your analysis is calculating the present value of the business's cash flows. His research has revealed the following information: The equity of similar consulting firms has an average beta of 2.40, and the average debt-to-equity ratio in this industry is close to zero. The risk-free rate is 3, 20% and the expected market risk premium (the average difference between the market return and the risk-free rate) is 4.50%. The corporate tax rate is 35% and interest payments on the debt are tax deductible. Shortly after hearing about your new business, your bank is willing to extend you a $3.50 million long-term loan/debt in perpetuity, provided you can pay an 8% interest rate. Realizing that the chances of bankruptcy are negligible with this amount of outstanding debt on your balance sheet, and that the debt tax shield risk is the same as the debt risk, you are seriously considering taking on the debt and use it in its entirety. withdraw some shares. If you decide to enter into this debt contract with the bank, What will be the price per share of the remaining shares? (Enter the nearest rounded dollar number without any $ signs or commas):

Answer rating: 100% (QA)

Q11 To calculate the value of the consulting company assuming it is financed exclusively with equity we can use the capital asset pricing model CAPM formula r Rf beta Rm Rf Where r is the expected ret... View the full answer