Author Question: Analysts expect M&M Inc. to generate EBIT of $100,000 at the end of the current year. Earnings are ... (Read 28 times)

jrubin · **on:** Apr 25, 2021

Question 1

According to Modigliani and Miller's second paper, firms should use ________% debt to maximize the value of the firm.
◦ 100
◦ 20
◦ 40
◦ 80
◦ 60

Question 2

Analysts expect M&M Inc. to generate EBIT of $100,000 at the end of the current year. Earnings are expected to remain constant in perpetuity. M&M has $100,000 of perpetual bonds outstanding with a yield (and coupon) of 10%. M&M has 100,000 shares outstanding which trade for $4.4. The tax rate is 40%. What is the WACC for M&M Inc.?
◦ 10.00%
◦ 11.11%
◦ 11.75%
◦ 12.00%
◦ 12.27%

frre432 · **Reply #1 on:** Apr 25, 2021

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