Calculate the value of leroy shipping

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Suppose Leroy’s Shipping (LS) has a total of $500 in debt. The company expects to generate $151.52 in cash flows before interest and taxes in perpetuity. LS can issue perpetual debt at an interest rate of 10%. Unlevered firms in the same industry have a cost of capital of 20%, and the corporate tax rate is 34%.

(a) Calculate the value of Leroy’s Shipping using the APV method.

(b) What is the WACC for Leroy’s Shipping? Does valuing the company using the WACC method yield the same answer?

Reference no: EM132029393

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