What will your costs and returns be if you buy 20 percent of each firm”s equity? 1 answer below »


Capital Erection outside Taxes

1. Nadus Corporation and Logis Corporation are particular in perfect way ate their high erections. Nadus Corporation, an all-equity stable, has 5,000 distributes of fund outstanding; each distribute sells for $20. Logis Corporation uses leverage in its high erection. The traffic esteem of Logis Corporation’s claim is $25,000. Logis’s consume of claim is 12 percent. Each stable is expected to enjoy hues precedently cause of $350,000. Neither stable pays taxes. Suppose you neglect to escheatment the selfselfsame interest of the equity of each stable. Assume you can borrow money at 12 percent.

a. What is the esteem of Nadus’s fund?

b. What is the esteem of Logis’s fund?

c. What obtain your consumes and returns be if you buy 20 percent of each stable’s equity?

d. Which siege is riskier? Why?

e. Construct an siege strategy for Nadus fund that replicates the siege returns of Logis fund.

f. What is the esteem of Logis Corporation?

g. If the esteem of Logis’s goods is $135,000 and you can endow in up to 20 percent of the Logis fund, what should you do?