debt to equity ratio: How does a business value on the number scale overall affect a...

debt to equity ratio:

How does a business value on the number scale overall affect a business financial well-beng?

Expert Solution

ekkarill92 answered 3 years ago

According to the Modigliani Miller approach, how does using debt affect the business value?

Question: What does the debt to equity ratio show, and how is it calculated?

A firm has debt-equity ratio of 1 (i.e. the value of the debt divided by the...

A firm has debt-equity ratio of 1 (i.e. the value of the debt divided by the value of the equity euqals one). The beta of the equity is 1.2 and the beta of the debt is 0.1. The risk free rate is 5% and the return on the market index is 10%. What is the WACC (weighted average cost of capital) for the firm? Suppose the firm above increases its borrowing so that the debt-equity ratio is 2. The recapitalization...

A firm has a debt-equity ratio of 4. The market value of the firm’s debt and...

A firm has a debt-equity ratio of 4. The market value of the firm’s debt and equity is £5m. What is the value of the firm’s debt? A: £4.0m B: £3.8m C: £4.5m D: £2.6m A firm has a debt-equity ratio of 4. The cost of debt capital is 8% and the cost of equity capital is 12%. What is the weighted average cost of capital for the firm (WACC)? A: 10.1% B: 8.8% C: 9.5% D: 9.2% Suppose Modigliani-Miller...

WRX Corp. has an equity beta of 1.20, a market value debt-to-equity ratio of 0.50, debt...

WRX Corp. has an equity beta of 1.20, a market value debt-to-equity ratio of 0.50, debt that is rated AAA, and a tax rate of 21%. Compute WRX Corp’s weighed average cost of capital (WACC) assuming that the current risk-free rate is 5%, the expected return on the market portfolio is 12%, and the current market price of 7.5% AAA bonds, with par values of $1000 maturing in 12 years is $1200. Assume that the bond makes annual coupon payments....

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debt to equity ratio: How does a business value on the number scale overall affect a...

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According to the Modigliani Miller approach, how does using debt affect the business value?

Question: What does the debt to equity ratio show, and how is it calculated?

A firm has debt-equity ratio of 1 (i.e. the value of the debt divided by the...

A firm has a debt-equity ratio of 4. The market value of the firm’s debt and...

WRX Corp. has an equity beta of 1.20, a market value debt-to-equity ratio of 0.50, debt...

Maximum Debt-Equity Ratio: What ratio of debt to equity maximizes the shareholders' interests?

The debt-equity ratio determines the amount of _____ risk that is associated with a firm. business...

The debt-equity ratio determines the amount of _____ risk that is associated with a firm. business...

Computing the debt to equity ratio

Is there an easily identifiably debt-equity ratio that will maximize the value of a firm? Why...