Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

problem: In finance, as in accounting, two (2) sides of the balance sheet must be equal. To value the other side, we must value the debt & the equity, and then add them together.

 

0% Debt/ 100% Equity

25% Debt/75% Equity

50% Debt/50% Equity

Cash flow to creditors:

 

 

 

Interest

0

$125

$250

Pretax cost of debt

0.05

0.05

0.05

Value of debt:

 

 

 

(Interest/kd)

-

-

-

Cash flow to shareholders:

 

 

 

EBIT

$1,485

$1,485

$1,485

 - Interest

0

$125

$250

Pretax profit

-

-

-

Taxes (@ 34%)

-

-

-

Net income

-

-

-

 + Depreciation

$500

$500

$500

- Capital Expense

$500

$500

$500

+ change in  net  working capital

0

0

0

- Debt amortization

0

0

0

Residual Cash Flow (RCF)

-

-

-

Cost of equity

-

-

-

Value of equity (RCF/ke)

-

-

-

Value of equity plus value of debt

-

-

-

As the firm levers up, how does the rise in value get apportioned between the creditors & the shareholders?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M921355

Have any Question? 


Related Questions in Basic Finance

You are a new loan officer with alpha mortgage and the

You are a new loan officer with Alpha Mortgage, and the manager of the loan department has just presented a problem to you. He is unable to complete the APR calculation on an adjustable rate mortgage which a borrower app ...

1 what kinds of things do volunteer organizations provide

1. What kinds of things do volunteer organizations provide for victims in the aftermath of a disaster? 2. What is the Incident Command System, and why was it originally developed? 3. What are the five major management sy ...

What are the three ways in which derivatives can be misused

What are the three ways in which derivatives can be misused? Contrast dollar return and percentage return. Be sure to identify which return is more useful when comparing investments? Compare and contrast options and forw ...

1 discuss the pros and cons of using naturalistic versus

1. Discuss the pros and cons of using naturalistic versus contrived observation. 2. What special opportunities and problems does participant observation create for researchers? 3. What does it mean if a behavior is react ...

1 what changes to disaster recovery programs were being

1. What changes to disaster recovery programs were being proposed in 2009? 2. Investigate how civil defense and emergency management evolved in your state or city. Look at such factors as when it was created, its origina ...

There are three 3 types of textbook based homework items

There are three (3) types of textbook based homework items located at the end of each chapter. These include Discussion Questions (DQ), Exercises (E), and Problems (P). Some homework items have been custom created. Compl ...

1 what kinds of organizations must consider disaster

1. What kinds of organizations must consider disaster preparedness? 2. What is the difference between mitigation and preparedness? 3. What are the steps involved in the preparedness cycle? 4. Name the ways that the Natio ...

1 in addition to the key words you should also be able to

1. In addition to the key words, you should also be able to define the following terms: third-variable problem directionality problem confounding variable random process placebo mundane realism experimental realism 2. De ...

Go to one of the web sites that contain video clips such as

Go to one of the Web sites that contain video clips (such as www.youtube.com) and review some video clips that are available about reducing your taxes. You can use search phrases in the Web site such as "tax savings tips ...

1 suppose that debit cards atms ach transactions and other

1. Suppose that debit cards, ATMs, ACH transactions, and other forms of electronic funds transfers did not exist. How would this change the way you shop and pay bills? How would transactions costs in the economy be affec ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen