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An unlevered firm has a value of $850 million. An otherwise identical but levered firm has $70 million in debt at a 6% interest rate. Its cost of debt is 6% and its unlevered cost of equity is 10%. After Year 1, free cash flows and tax savings are expected to grow at a constant rate of 4%. Assuming the corporate tax rate is 35%, use the compressed adjusted present value model to determine the value of the levered firm. (Hint: The interest expense at Year 1 is based on the current level of debt.) Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answer to two decimal places.
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Perform a ratio analysis (five year trend for Amazon; compare it to a like corporation)- I would suggest Ebay.
The following information were taken from the 2004 and 2003 financial statements of American Eagle Outfitters.
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