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problem: Company A is an unlevered company with $2.5 million of EBIT, tax rate 34%, and a 10% required return on equity.

[A] Assume Company A is levered with $12 million of 7% bonds. find out the market value of the resulting levered Company B?  

[B] Assume there is two companies, X and Y that are identical in all respects to the unlevered Company A & the levered Company B. The market value of A is $12,000,000 & the market value of B is $22,000,000. What is likely to happen as a consequence of these prices?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M919769

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