QUESTION 35
The following information is used for questions 35-38.
You are presented with information concerning two companies. Both have the same degree of business risk. Company
is financed entirely with common stock while Company L is financed with $200,000 of perpetual debt that has a coupon
interest rate of 7.5% and a yield to maturity of 7.5% (it is price at it's face value). The expected net operating income of
both companies is $75,000 a year forever. Company U has a cost of equity of 10%, while Company L has a cost of equity c
12%. Assume there are no taxes in this world.
For each company, calculate the (1) value of their equity and (2) the total market value of the company. (show the
values of the debt, stock, total company for each)
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Arial
3 (12pt)
Company U:
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