The Boring Corporation is currently valued at $1,151 million, but management wants to completely pay off its perpetual debt of $266 million.

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Question#1

The Boring Corporation is currently valued at $1,151 million, but management wants to completely pay off its perpetual debt of $266 million. Boring is subject to a 39 percent marginal tax rate. If Boring pays off its debt, what will be the total value of its equity?

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Total value of equity $

 

 

Question 2

Backwards Resources has a WACC of 13.7 percent, and it is subject to a 35 percent marginal tax rate. Backwards has $333 million of debt outstanding at an interest rate of 11 percent and $746 million of equity (market value) outstanding. What is the expected return on the equity with this capital structure? (Round answer to 2 decimal places, e.g. 17.54%.)

Expected return on equity %

 

Question 3

The weighted average cost of capital for a firm (assuming all three Modigliani and Miller assumptions apply) is 15 percent. What is the current cost of equity capital for the firm if its cost of debt is 10 percent and the proportion of debt to total firm value for the firm is 0.5?

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Current cost of capital %

 

 

Question 5

The weighted average cost of capital for a firm, assuming all three Modigliani and Miller assumptions hold, is 13 percent. What is the current cost of equity capital for the firm if the cost of debt for the firm is 8 percent, and the firm is 67 percent financed with debt? (Round answer to 2 decimal places, e.g.17.54%.)

 

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