According to the flow to equity approach to valuation

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Reference no: EM131920100

1. Energy Efficiency Consulting (EEC) has three offices. The corporation has a debt-equity ratio 40 percent and makes interest payments $123,000 at the end of each year. The firm’s current equity cost of capital is 19 percent. Each of EEC’s offices estimates annual sales of $1.3 million, annual cost of goods sold of $670,000, and annual total general and administrative costs $405,000. The corporate tax rate is 40%.

If you assume these business conditions will remain the same forever, what is the value of the company's equity according to the flow to equity approach to valuation?

A. None of these values are correct.

B. $322,10

C. $1,484,211

D. $2,131,579

2. Pat realized a total return of 11.8 percent which is less than his expected return of 12.5 percent. What is the amount of his unexpected return?

-1.4%

-0.7%

0.7%

1.4%

1.8%

Reference no: EM131920100

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