A Security Company produces a cash flow of $210 per year and is expected to continue doing so in the infinite future. The cost of equity capital is 15 percent, and the firm is financed entirely with equity. Management would like to repurchase $100 in shares by borrowing $100 at a 10 percent annual rate (assume that the debt will also be outstanding into the infinite future). Using Modigliani and Miller’s Proposition 1 answer the following questions. What is the value of the firm today? Value of the firm   $enter the dollar value of the firm    What is the value of equity after the repurchase? Value of the equity   $enter the dollar value of the equity    What will be the rate of return on common stock required by investors after the stock repurchase? (Round answer to 2 decimal places, e.g. 17.54%.) Rate of return on common stock   enter the rate of return on common stock in percentages rounded to 2 decimal places %

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A:

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.