If a firm has a capital structure of $29m and $10m preferred stock, how much must...

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If a firm has a capital structure of $29m and $10m preferred stock, how much must the weight on common stock be if the total

What is the value of a levered firm that has operating income (EBIT) of $103m, a tax rate of 21%, $326m of debt at 4%, and a

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Answer 1

Answer #1

Ques-)

Total Capital Structure = $120m

- Preferred Stock = $10m

- Other Capital source = $29m

Common Stock Portion in Capital Structure= Total Capital Structure - Preferred Stock - Other Capital source

=$120m - $10m - $29m

= $81m

Weight of Common Stock Portion in Capital Structure= Common Stock/Total Capital Structure

= $81m/$120m

= 67.5%

Ques-)

EBIT = $103m

- Value of Levered Firm = EBIT(1-Tax rate)/Required Rate of Return

= $103m(1-0.21)/13.9%

= $ 585.40m

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Answer 2

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