Debt-equity ratio-pretax cost of the firms debt

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Reference no: EM131064630

Mojito Mint company has a debt-equity ratio of .35. The required return on the company's unlevered equity is 12.8 percent, and the pretax cost of the firm's debt is 6.5 percent. Sales revenue for the company is expected to remain stable indefinitely at the last year's level of $17,500,000. Variable costs amount to 60 percent of sales. The tax rate is 40 percent, and the company distributes all its earnings as dividends at the end of each year. If the company were financed entirely by equity, how much it be worth?

A. $32,812,500

B. $32,124,500

C. $31,221,500

D. $32,188,500

Reference no: EM131064630

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