Problem 1: Value Value of of Assets
Book Value of Debt Book Value of Equity Market Market Value of Debt Market Market Value of Equity
0% Debt/ 25% Debt/ 50% Debt/ 100% 10 0% Equit quity y 75% 75% Equ Equit ity y 50% 50% Eq Equity uity $ 2,500.00 $ 5,000.00 $10,000.00 $ 7,500.00 $ 5,000.00 $10,000.00
"reta# ot of Debt &fter-'a# ot of Debt Market Value )ei*+t of Debt Equity leere leere Beta eere Beta ik-3ree ate Market Market "re4iu4 "re4iu4 ot of Equity ot of Debt )ei*+te-&era*e )ei*+te-&era*e ot of aital EB6' 'a#e 'a#e (%9 EB6&' EB6&' : Dere;iatio - aital aital e#. e#. : +a +a*e i et
$ $ $ $ $ $
$ 2,500.00 $ 8,50.00
$ 5,000.00 $ !,700.00
0.07
0 .0 7
0.07
0 .0 ( !2
0.0(!2
0.0(!2
0% 100% 0.80 0 .8 0 0.07 0.08! 0.1( 0.05 0.1( 2,10.00 715.02 1,87.8 5 0 0 . 00 500.009 500.009 1,87.8
2.0(% 7!.!% 0.80 0.! 0.07 0.08! 0.15 0.05 0.1 2,10.00 715.02 1,87.8 5 0 0 . 00 500.009 500.009 1,87.8
(2.7(% 57.2!% 0.80 1 .1 0.07 0.08! 0.17 0.05 0.12 2,10.00 715.02 1,87.8 500.00 500.009 500.009 1,87.8
$ ,.8! ,.8 !
$ $ $ $ $ $
$10,8(.8( $10,8( .8(
$ $ $ $ $ $
$11,!.8 $11,! .8
Problem 2: Value of Equity and Debt 0% Debt/ 25% Debt/ 100% Equity 75% Equity a+ =o< to ;reitor> 6teret "reta# ;ot of ebt Value of ebt> 3/r9
$
a+ =o< to +are+oler> EB6' - 6teret "reta# ro?t 'a#e (%9 @et i;o4e : Dere;iatio - aital e#. : +a*e i et
$ 2,10.00 $ 2,10.00 $ 715.02 $ 1,87.8 $ 500.00 $ 500.009 $ 1,87.8
ot of equity
$
0.07 -
50% Debt/ 50% Equity
$
175.00 0.07 $ 2,500.00
$
50.00 0.07 $ 5,000.00
$ 2,10.00 $175 $ 1,28.00 $ !55.52 $ 1,272.(8 $ 500.00 $ 500.009 $ 1,272.(8
$ 2,10.00 $50 $ 1,75.00 $ 5!.02 $ 1,15!.8 $ 500.00 $ 500.009 $ 1,15!.8
0.1(
0.15
0.17
Value of equity 3/r e9
$ ,.8!
$ 8,(.87
$ !,!.88
Value of equity lu alue of ebt
$ ,.8!
$10,8(.87
$11,!.88
Problem 3: Business Flows and Financing Eects
"ure Buie a+ 3lo<> EB6' 'a#e (%9 EB6&' : Dere;iatio - aital e#. : +a*e i et
0% Debt/ 25% Debt/ 100% Equity 75% Equity
50% Debt/ 50% Equity
$ $ $ $ $ $ $
$ $ $ $ $ $ $
leere Beta ik-3ree ate Market "re4iu4 leere )&
2,10 7159 1,88 500 5009 1,88
$ $ $ $ $ $ $
0.8 0.07 0.08! 1.88%
2,10 7159 1,88 500 5009 1,88 0.8 0.07 0.08! 1.88%
2,10 7159 1,88 500 5009 1,88 0.8 0.07 0.08! 1.88%
Value of "ure Buie 3lo<> 33/leere )&9
$ ,.8!
$ ,.8!
$ ,.8!
3ia;i* a+ 3lo< 6teret 'a# eu;tio
$ $
$ $
$ $
"reta# ot of Debt Value of 3ia;i* Ee;t> 'a# eu;tio/"reta# ot of Debt9
0.07
$
-
'otal Value Cu4 of Value of "ure Buie 3lo< a 3ia;i* Ee;t $ ,.8!
175.00 5.50
50.00 11.00
0.07
0.07
850.00
$ 1,700.00
$10,8(.8!
$11,!.8!
$
0% Debt/
25% Debt/
50% Debt/
100% Equity
75% Equity
50% Equity
Value of &et
$ ,.8!
$ 10,8(.8!
$ 11,!.8!
a+ "ai ut
$
$
2,500.00
$
5,000.00
$
8,(.8!
$
!,!.8!
'otal Market Value of Equity
$ ,.8!
@u4ber of ri*ial C+are 'otal Value "er C+are
1,000
$
10.00
1,000 $
10.85
1,000 $
11.70
E#+ibit 1 oer o4ay, 6;. Before
&fter
e;aitaliAatio
e;aitaliAatio
@et
$
212,(5.00
$ 1,778,1.00
3i#e aet
$
!01,((!.00
$
'otal aet
$
81,8.00
$ 2,7,585.00
Boo! Value Balance "#eets
&itioal ebt
!01,((!.00
$ 1,5!5,!8!.00
o*-ter4 ebt
$
172,(0.00
$ 1,78,05.00
Deferre ta#e, et;.
$
15,!1!.00
$
15,!1!.00
"referre to;k
$
15,000.00
$
15,000.00
o44o equity
$
(0,87(.00
$
(0,87(.00
$
81,8.00
$ 2,7,585.00
@et
$
212,(5.00
$ 1,778,1.00
3i#e aet
$ 1,!18,081.00
$ 1,!18,081.00
"V ebt ta# +iel
$
$
'otal ;aital $ar!et%Value Balance "#eets
'otal aet
58,!1.00
50,52.0
$ 1,88,15.00
$ ,87,172.0
o* ter4 ebt
$
$ 1,78,05.00
Deferre ta#e, et;.
$
"referre to;k
$
o44o equity
$ 1,701,7((.00
$ 2,2(,077.0
$ 1,88,15.00
$ ,87,172.0
@u4ber of +are
$
28,128.00
$
28,128.00
"ri;e er +are
$
!0.50
$
7.(
'otal ;aital
172,(0.00 15,000.00
$ $
15,000.00
Value to "ubli; C+are+oler a+ re;eie
$
-
Value of +are
$ 1,701,7((.00
$ 2,2(,077.0
'otal
$ 1,701,7((.00
$ ,7,7!.0
'otal er +are
$
$
!0.50
$ 1,5!5,!8!.00
15.0
