Finance question need an answer ASAP
Suppose there are no taxes. ; Firm ABC has no debt, and firm XYZ has a debt of $5000 on which it pays interest of 10% each year. ; Both companies have identical projects that generate free cash flows of $800 or $1000 each year. ; After paying any interest on debt, both companies use all remaining free cash flows to pay dividends each year.
a) ; Fill in the table below showing the payments debt and equity holders of each firm will receive given each of the two possible levels of free cash flows.
OUR PROCESS
Order
Payment
Writing
Delivery
Why Choose Us: Cost-efficiency, Plagiarism free, Money Back Guarantee, On-time Delivery, Total Сonfidentiality, 24/7 Support, 100% originality
|
ABC |
XYZ |
|||
|
FCF |
Debt Payments |
Equity Payments |
Debt Payments |
Equity Payments |
|
$800 |
||||
|
$1000 |
b) ; Suppose you hold 10% of the equity of ABC. ; What is another portfolio you could hold that would provide the same cash flows?
c) ; Suppose you hold 10% of the equity of XYZ. ; If you can borrow at 10%, what is an alternative strategy that would provide the same cash flows?
