Question: Wolfrum Technology (WT) has no debt. Its assets will be worth $430 million one year from now if the economy is strong, but only $212
Wolfrum Technology (WT) has no debt. Its assets will be worth $430 million one year from now if the economy is strong, but only $212 million in one year of the economy is weak. Both events are equally likely. The market value today of its assets is $246 million a. What is the expected return of WT stock without leverage? b. Suppose the risk-free interest rate is 5%. If WT borrows $139 million today at this rate and uses the proceeds to pay an immediate cash dividend, what will be the market value of its equity Just after the dividend is paid, according to MM? c. What is the expected return of WT stock after the dividend is paid in part (b)
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