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10. M& M wood corp. uses no debt. The weighted average cost of capital is 9%. If the current market value of the equity is $ 23 million and there are no taxes, what is EBIT?

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Related questions

Chuck-It Inc. is an unlevered firm. The current market value of its equity is $17.5 million and cost of equity is 11.5%.

a) If there are no taxes, what is the value of its EBIT? What is the WACC?

b) If the tax rate is 35%, what is the value of its EBIT? What is the WACC?

(Assume there is no cost of financial distress)

Assignment Questions:

1. For models 2, 2a, and 2b:

What is the best way to minimize the weighted average cost of capital?

What is the effect of the weighted average cost of capital on the market value?

2. For models 3, 3a, and 3b:

What is the relationship between book value of equity and time t-1 and the market value of the equity?

3. Discuss model 4 and expand on the importance and the meaning of the market risk premium.

4. In your own words, what are the main conclusions for this article, and what could be improved upon in its analysis?

Acetate, Inc., has equity with a market value of $23.6 million and debt with a market value of $7.08 million. Treasury bills that mature in one year yield 5 percent per year, and the expected return on the market portfolio is 12 percent. The beta of the company’s equity is 1.21. The company pays no taxes.

a. What is the company's debt–equity ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Debt–equity ratio

b.

What is the company’s weighted average cost of capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Weighted average cost of capital %

c.

What is the cost of capital for an otherwise identical all-equity company?

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