Wolfrum Technology (WT) has no debt. Its assets will be worth $486 million one year...
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Finance
Wolfrum Technology (WT) has no debt. Its assets will be worth
$486
million one year from now if the economy is strong, but only
$254
million in one year if the economy is weak. Both events are equally likely. The market value today of its assets is
$295
million.
a. What is the expected return of WT stock without leverage?
b. Suppose the risk-free interest rate is
5%.
If WT borrows
$81
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)?
a. The unlevered expected return of WT stock is
25.4225.42%.
(Round to two decimal places.)b. The market value of WT's equity is
$214214
million. (Round to the nearest integer.)
c. The expected return of WT stock is
(Round to two decimal places.)
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