An un-levered firm, Toronto Make Believes Ltd. has EBIT of $500,000 that it expects it will earn forever and it pays all of its earnings as dividends to shareholders (ie., no growth). Toronto Make Believes Ltd. has 100,000 shares outstanding and there are no taxes. All debt will have coupon interest of 6 percent. You observe in the market that government T-bills are being sold to yield 4 percent and the market risk premium is 5 percent.
a. Calculate the required rate of return for the shareholders of this un-levered firm. (2 marks)


Just one part messing me up. Need this for every other question


I must be missing something stupid. Again, i am not interested in an answer just how i should go about it or the theory behind it that I must be missing.

This post was edited by wesley123 on Oct 30 2013 09:49pm