Determine total value of company when debt to equity ratio

Assignment Help Financial Management
Reference no: EM131611330

Suppose Pizza Club, a local pizza restaurant, makes interest payments of $34,000 at the end of each year. The cost of firm’s (levered) equity is 18 percent. The annual sales will be around $1.4 million, annual cost of goods sold will be $530,000, and annual general and administrative costs will be $340,000. The corporate tax rate is 40 percent. Assuming these cash flows being expected to remain the same forever, and with the FTE approach:

a. Determine the total value of the company when the debt to equity ratio of 40 percent.

b. Determine the total value of the company when the debt to equity ratio of 60 percent.

Reference no: EM131611330

Questions Cloud

How much is the cash paid for merchandise purchased : A company reported cost of goods sold of $400,000 for the year. How much is the cash paid for merchandise purchased during the year
What is the companys inventory balance to be reported : Beginning of the period inventory was $3,000. What is the company's inventory balance to be reported on its balance sheet at year end
What amount the journal entry to record this exchange : The journal entry to record this exchange should debit the Equipment account for what amount
What is the amount to use as the annual sales : What is the amount to use as the annual sales figure when evaluating this project?
Determine total value of company when debt to equity ratio : Determine the total value of the company when the debt to equity ratio of 40 percent.
What is the value of this firm : The Smith Vacations Company has expected earnings before interest and taxes of $2,100 per year in perpetuity, What is the value of this firm?
Determine the value of zercon : The Zercon Company has EBIT of $50,000 and market value debt of $100,000 outstanding with a 9% coupon rate. Determine the value of Zercon.
Calculate the federal income tax for an individual : How would I calculate the Federal Income Tax for an individual who is married with 4 allowances
Interactions among market efficiency and the cost of capital : Explain the interactions among market efficiency, capital budgeting, and the cost of capital.

Reviews

Write a Review

Financial Management Questions & Answers

  The bond is treated as an original issue discount bond.

The bond is treated as an original issue discount bond.

  What is the effect on the us willingness to trade

What is the effect on the U.S. production-possibility curve? -  What is the effect on the U.S. willingness to trade?

  Pretax operating costs

You are evaluating two different silicon wafer milling machines. The Techron I costs $270,000, has a three-year life, and has pretax operating costs of $73,000 per year. The Techron II costs $470,000, has a five-year life, and has pretax operating co..

  What are the banks new excess reserves

Suppose that the bank sells $5 million in securities to get new cash. Show the bank's balance sheet after this transaction. What are the bank's new excess reserves?

  Prepare the financial report on the company nmc health plc

Introduction: NMC Health Plc is an Abu Dhabi based company. Dr. B.R.Shetty started this company in the year 1975 in UAE. This company enabled the government provide free, albeit basic health care facilities to all residents.

  The euro increased dramatically in value

The Euro increased dramatically in value against the U.S dollar between 2000 and 2009. The result has been that

  Sponsoring sports games and putting up beer gardens

K’s brewery is sponsoring sports games and putting up “beer gardens”, selling drinks and snacks. For the first such event, the manager of the beer garden needs to determine how many pretzels to order. If the game is interesting, the manager thinks th..

  Markets efficiency-semi-strong or weak form of efficient

A stock market analyst is able to identify mispriced stocks by comparing the average price for the last 10 days to the average price for the last 60 days. If this is true, what do you know about the market’s efficiency? Is it Strong, Semi-Strong or W..

  Contrast the four basic types of competition

Define, compare, and contrast the four basic types of competition. Then, pick an industry (other than those used in exhibit 3.6) and describe the different types using firms and products in that industry.

  What is the cost of existing and new preferred stock

Toto and Associates' preferred stock is selling for $27.50 per share. The firm nets $25.60 after issuance costs. The stock pays an annual dividend of $3.00 per share. What is the cost of existing, and new, preferred stock respectively?

  Target capital structure-marginal cost of equity capital

allison Engines Corporation has established a target capital structure of 40 % debt and 60% common equity. The firm expects to earn $600 in after tax income during the coming year and it will retain 40% of those earnings. the current market price of ..

  New company and currently has negative earnings

TwitterMe, Inc., is a new company and currently has negative earnings. The company’s sales are $2,100,000 and there are 150,000 shares outstanding. If the benchmark price-sales ratio for the company is 4.7, how much will you pay for the stock?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd