Given that Calculate

Earnings (x) $1,000 i) y = Return to shareholders

Growth rate (g) 0.03 ii) z = Return to shareholders & bondholders
Debt (D) $2,000 $4,000 iii) v = Value of the entire enterprise
Tax rate (T) 0.40 0.20 iv) s = Value of equity
Interst rate (R) 0.10 0.15 v) (d/s) = Debt to equity ratio
Cost of Equity (k) 0.10 vi) (y/s) = Yield on equity
vii) (z/v) = Total return to value of entire enterprise ra

Different Combination
SL NO Tax rate (T) Debt (D) Rate ( r) rd
1 0.40 $2,000 0.10 $200.00
2 0.40 $4,000 0.10 $400.00
3 0.20 $2,000 0.10 $200.00
4 0.20 $4,000 0.10 $400.00
5 0.40 $2,000 0.15 $300.00
6 0.40 $4,000 0.15 $600.00
7 0.20 $2,000 0.15 $300.00
8 0.20 $4,000 0.15 $600.00

SL Y=(x-rd) (1-T) Z=Y+rd V=(1-T) (x/(k-g))+(T*(r/k)*D) S=(V-D) (D/S) (Y/S) (Z/V)

1 $480.00 $680.00 $9,371.43 $7,371.43 0.271 0.065 0.073
2 $360.00 $760.00 $10,171.43 $6,171.43 0.648 0.058 0.075
3 $640.00 $840.00 $11,828.57 $9,828.57 0.203 0.065 0.071
4 $480.00 $880.00 $12,228.57 $8,228.57 0.486 0.058 0.072
5 $420.00 $720.00 $9,771.43 $7,771.43 0.257 0.054 0.074
6 $240.00 $840.00 $10,971.43 $6,971.43 0.574 0.034 0.077
7 $560.00 $860.00 $12,028.57 $10,028.57 0.199 0.056 0.071
8 $320.00 $920.00 $12,628.57 $8,628.57 0.464 0.037 0.073