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In: Finance
Acort Industries owns assets that will have a(n) 65 % probability of having a market value...
Acort Industries owns assets that will have a(n) 65 % probability of having a market value of $ 57 million in one year. There is a 35 % chance that the assets will be worth only $ 27 million. The current risk-free rate is 5 %, and Acort's assets have a cost of capital of 10 %. a. If Acort is unlevered, what is the current market value of its equity? b. Suppose instead that Acort has debt with a face value of $ 22 million due in one year. According to MM, what is the value of Acort's equity in this case? c. What is the expected return of Acort's equity without leverage? What is the expected return of Acort's equity with leverage? d. What is the lowest possible realized return of Acort's equity with and without leverage?
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jeff jeffy answered 2 years agoRelated Solutions
Acort Industries owns assets that will have a(n) 65 % probability of having a market value...
Acort Industries owns assets that will have a(n) 65 %
probability of having a market value of $ 43 million in one year.
There is a 35 % chance that the assets will be worth only $ 13
million. The current risk-free rate is 10 %, and Acort's assets
have a cost of capital of 20 %.
a. If Acort is unlevered, what is the current market value of
its equity?
b. Suppose instead that Acort has debt with a...
Acort Industries owns assets that will have a(n) 75% probability of having a market value of...
Acort Industries owns assets that will have a(n) 75%
probability of having a market value of $47 million in one year.
There is a 25% chance that the assets will be worth only $17
million. The current risk-free rate is 11%, and Acort's assets
have a cost of capital of 22%.
a. If Acort is unlevered, what is the current market value of
its equity?
b. Suppose instead that Acort has debt with a face value of $16
million due...
Acort Industries owns assets that will have a(n) 70% probability of having a market value of...
Acort Industries owns assets that will have a(n)
70%
probability of having a market value of
$42
million in one year. There is a
30%
chance that the assets will be worth only
$12
million. The current risk-free rate is
6%,
and Acort's assets have a cost of capital of
12%.
a. If Acort is unlevered, what is the current market value of
its equity?
b. Suppose instead that Acort has debt with a face value of
$8
million due...
Acort Industries owns assets that will have a(n) 70 % probability of having a market value...
Acort Industries owns assets that will have a(n) 70 %
probability of having a market value of $ 60 million in one year.
There is a 30 % chance that the assets will be worth only $ 30
million. The current risk-free rate is 10 %, and Acort's assets
have a cost of capital of 20 %. a. If Acort is unlevered, what is
the current market value of its equity? b. Suppose instead that
Acort has debt with a...
Acort Industries owns assets that will have a(n) 80 %80% probability of having a market value...
Acort Industries owns assets that will have a(n)
80 %80%
probability of having a market value of
$ 54$54
million in one year. There is a
20 %20%
chance that the assets will be worth only
$ 24$24
million. The current risk-free rate is
2 %2%,
and Acort's assets have a cost of capital of
4 %4%.
a. If Acort is unlevered, what is the current market value of
its equity?
b. Suppose instead that Acort has debt with a...
. Acort Industries owns assets that will have an 80% probability of having a market value...
.
Acort Industries owns assets that will have an 80% probability
of having a market value of $50 million in one year. There is a 20%
chance that the assets will be worth only $20 million. The current
risk-free rate is 5%, and Acort’s assets have a cost of capital of
10%. a. If Acort is unlevered, what is the current market
value of its equity? b. Suppose instead that Acort has debt with a
face value of $20 million...
Acort Industries owns assets that will have an 75% probability of having a market value of...
Acort Industries owns assets that will have an 75% probability
of having a market value of $48 million in one year from now. There
is a 25% chance that the assets will be worth only $18 million. The
current risk-free rate is 5%, and Acort’s assets have a cost of
capital of 10%.
a) If Acort is unlevered, what is the current market value of
its equity?
b) Suppose instead that Acort has debt with a face value of $18...
If it is managed efficiently, Remel, Inc., will have assets with a market value of $...
If it is managed efficiently, Remel, Inc., will have assets
with a market value of $ 50.4 million, $ 100.9 million, or $
150.8 million next year, with each outcome being equally likely.
However, managers may engage in wasteful empire building, which
will reduce the market value by $ 5.1 million in all cases.
Managers may also increase the risk of the firm, changing the
probability of each outcome to 47 %, 12 %, and 41 %,
respectively. a. What...
I- If it is managed efficiently, Remel, Inc., will have assets with a market value of...
I- If it is managed efficiently, Remel, Inc., will have assets
with a market value of $ 50.1million,$ 99.2million, or $ 148.9
million next year, with each outcome being equally likely.
However, managers may engage in wasteful empire building,which
will reduce the market value by $ 5.2 million in all cases.
Managers may also increase the risk of the firm, changing the
probability of each outcome to 48 %,10 %,and 42 %,respectively.
a. What is the expected value of Remel's...
The market and Stock A have the following probability distributions: Probability Return on Market Return on...
The market and Stock A have the following probability
distributions:
Probability
Return on Market
Return on Stock A
0.15
15%
18%
0.3
12%
15%
0.55
10%
11%
a. Calculate the expected rates of return for the market and
Stock A.
b. Calculate the standard deviations for the market and Stock
A.
c. Calculate the coefficient of variation for the market and
Stock A.
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