Question
ABC Drilling has debt with a market value of $200,000 and a yield of 9%. The firm's equity has a market value of $300,000, its earnings are growing at a 5% rate, and its tax rate is 40%. A similar firm with no debt has a cost of equity of 12%.
Under the MM extension with growth, what would ABC Drilling's total value be if it had no debt? What is the Cost of Equity.