Tanten Company has 20% debt and 80% equity. The borrowing rate is 12%.
(1) If you own 4% of the stock of Abacus, what is your dollar return if the company has net operating income of $750,000 and the over all capitalization rate , Ko, is 15%? Value of the firm is 500,000
(2) What is the implied required rate of return on equity?
3) What is the market value of stock and the return of stock?
4) What is the market value of debt?
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