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Problem #3: Company A (100% equity) is valued at $15,000,000 and Company B (which has $3,000,000...

Problem #3: Company A (100% equity) is valued at $15,000,000 and Company B (which has $3,000,000 in long debt with an interest rate of 8%). The tax rate is 30%. Both A & B have identical after-tax profit $1,200,000 and it is given that both have identical operating risk profile and identical pretax income. Assume ReA should is 12%. Calculate:

  1. Value of B
  2. Capital Structure Mix of B
  3. Cost of capital for A & B

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Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 1 year ago
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