Calculate the firm total value

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Gringotts Industries pays interest of $3 million each year on bonds with an average coupon rate of 7.5%. The firm has 4.7 million shares of stock outstanding and pays out 100% of earnings in dividends. Earnings per share (EPS) is $3.50. Gringotts's cost of equity is 13%. Calculate the firm's total value (the value of its debt plus that of its equity) under the assumptions of Modigliani and Miller's simplest model (i.e., there are no taxes and no transactions costs in financial markets). (Hint: Use Equations Vd = I/kd, Ve = D/ke, and Vf = Vd + Ve.). Enter your answer in millions. For example, an answer of $1.25 million should be entered as 1.25, not 1250000. Do not round intermediate calculations. Round the answer to two decimal places.

Reference no: EM132709826

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