Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. firm abc’s projected cash flows are as follows

Firm ABC’s projected cash flows are as follows Year 1 2 3 4 and 4+ CF 3,000 5,000 8,000 Grow at g = 1% forever We...

50.1K

Verified Solution

Question

Finance

Firm ABC’s projected cash flows are as follows

Year

1

2

3

4 and 4+

CF

3,000

5,000

8,000

Grow at g = 1% forever

We can choose one of the following two capital structureplans:

Debt

Equity

Plan A

20%

80%

Plan B

50%

50%

Plan C

70%

30%

The cost of debt are as follows

Debt

Cost of debt

Plan A

20%

risk-free rate + 0.5%

Plan B

50%

risk-free rate + 1%

Plan C

70%

risk-free rate + 3%

The firm’s unlevered beta is 0.8, tax rate is 40%. Market returnis 9%.

To calculate risk-free rate, we have the followinginformation.

The 10-year Treasury bond with par value $100, annual couponrate 3.125%, 10-year to maturity, is selling at $90.

What is the highest possible firm value?

a

117,613.91

b

121,494.40

c

139,027.85

d

129,035.03

Answer & Explanation Solved by verified expert
4.1 Ratings (736 Votes)
AnswerCorrect answer isd12903503ExplanationCalculation of risk free rateTreasury bond Par value 100Annual    See Answer
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Transcribed Image Text

Firm ABC’s projected cash flows are as followsYear1234 and 4+CF3,0005,0008,000Grow at g = 1% foreverWe can choose one of the following two capital structureplans:DebtEquityPlan A20%80%Plan B50%50%Plan C70%30%The cost of debt are as followsDebtCost of debtPlan A20%risk-free rate + 0.5%Plan B50%risk-free rate + 1%Plan C70%risk-free rate + 3%The firm’s unlevered beta is 0.8, tax rate is 40%. Market returnis 9%.To calculate risk-free rate, we have the followinginformation.The 10-year Treasury bond with par value $100, annual couponrate 3.125%, 10-year to maturity, is selling at $90.What is the highest possible firm value?a117,613.91b121,494.40c139,027.85d129,035.03

Other questions asked by students

Q

In Pennsylvania, 6,165,478 people voted in the election. Trump received 48.18% of the vote and Clinton...

Statistics
Q

Transformational leadership has been positively related to individual level, group, and organisational performance. Using relevant examples, explain...

Operations Management
Q

who is credited with discovering the ABO, Rh blood group antigens and what was the significance?

Biology
Q

20. Which ONE of the following refers to the failure of companies to follow the...

Biology
Q

2 What kind of approach to phylogeny reconstruction is ribosomal RNA sequencing cladistic or phenetic...

Biology
Q

A hoop I M R starts from rest and rolls without slipping down an incline...

Physics
Q

Note The figure is not drawn to scale and PM 4 what is the length...

Geometry
Q

ACDE the measure of ZE 90 ED 28 CE 45 and DC 53 What rati...

Algebra
Q

Companies in the tire manufacturing business use a lot of property, plant, and...

Accounting
Q

Telfer, Inc. reported net income of $2.1 million in 2017. Depreciation for the year was...

Accounting
Q

QUESTION 11(CHAPTER 20) Pittsburgh Corporation has three shareholders: Jim, Connor, and Nick. Jim, Connor...

Accounting
Q

The interest rate that sets the present value of a project's cash inflows equal to...

Accounting