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Levered Inc and Unlevered Inc are identical in every way except their capital structures Each company expects to earn $293 million before interest per year in perpetuity with each company

Levered, Inc. and Unlevered, Inc. are identical in every way except their capital structures. Each company expects to earn $29.3 million before interest per year in perpetuity, with each company distributing all its earnings as dividends. Levered’s perpetual debt has a market value of $94 million and costs 8 percent per year. Levered has 2.6 million shares outstanding, currently work $108 per share. Unlevered has no debt and 4.8 million shares outstanding, currently work $83 per share. Neither firm pays taxes.What is the value of each firm? (Unlevered, levered)

 

Apr 30 2020 View more View Less

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