Problem

Given that Earnings (x) $1,000 Calculate

Growth rate (g) 0.01 i) y = Return to shareholders
Debt (D) $2,000 $4,000 ii) z = Return to shareholders & bondhold
Tax rate (T) 0.40 0.20 iii) v = Value of the entire enterprise
Interst rate (R) 0.10 0.15 iv) s = Value of equity
Cost of Equity (k) 0.10 v) (d/s) = Debt to equity ratio
vi) (y/s) = Yield on equity
vii) (z/v) = Return of shareholders & bondh

Different Combination
SL NO Tax rate (T) Debt (D) Interest rate ( R) rd SL NO Y = (x-rd) (1-T)
1 0.40 $2,000 0.10 $200.00 1 $480.00
2 0.40 $4,000 0.10 $400.00 2 $360.00
3 0.20 $2,000 0.10 $200.00 3 $640.00
4 0.20 $4,000 0.10 $400.00 4 $480.00
5 0.40 $2,000 0.15 $300.00 5 $420.00
6 0.40 $4,000 0.15 $600.00 6 $240.00
7 0.20 $2,000 0.15 $300.00 7 $560.00
8 0.20 $4,000 0.15 $600.00 8 $320.00
areholders & bondholders
entire enterprise

f shareholders & bondholders to value of entire enterprise ratio

CALCULATION
Z=Y+rd V=(1-T) (x/(k-g))+(T*(r/k)*D) (X/V) S= V-D (D/S) (Y/S) (Z/V)
$680.00 $7,466.67 0.134 $5,466.67 0.366 0.088 0.091
$760.00 $8,266.67 0.121 $4,266.67 0.938 0.084 0.092
$840.00 $9,288.89 0.108 $7,288.89 0.274 0.088 0.090
$880.00 $9,688.89 0.103 $5,688.89 0.703 0.084 0.091
$720.00 $7,866.67 0.127 $5,866.67 0.341 0.072 0.092
$840.00 $9,066.67 0.110 $5,066.67 0.789 0.047 0.093
$860.00 $9,488.89 0.105 $7,488.89 0.267 0.075 0.091
$920.00 $10,088.89 0.099 $6,088.89 0.657 0.053 0.091