Estimate the unlevered value of the firm

Assignment Help Financial Management

Reference no: EM13939736

Pennsylvania Steel, one of the largest steel companies in the united States, is considering whether it has any excess debt capacity. The company has $527 million in market value of debt outstanding and $1.76 billion of market value of equity. The company has EBIT of $131 million and faces a corporate tax rate of 36%. The company’s bonds are rated BBB, and the cost of debt is 8%. At this rating the company has a probability of default of 2.30%, and the cost of bankruptcy is estimated to be 30% of firm value.

Estimate the unlevered value of the firm.

Estimate the levered value of the firm using the APV approach, at a debt ratio of 50%. At that debt ratio, the firm’s bond rating will be CCC, and the probability of default will increase to 30%.

Reference no: EM13939736

Questions Cloud

Prepare a statement of cash flows for beckwith products : Prepare a statement of cash flows (indirect method) for Beckwith Products for 2009. List the major reasons for the difference between net income and net cash flow from operating activities.

Formal report with appropriate sketches and references : You are required to present a formal report with appropriate sketches and references, explaining each of the following points and the decisions taken.

Why is str more effective and more sensitive : What is Short Tandum Repeat (STR) and why do we now use that for DNA profiling instead of RFLP? Why is STR more effective and more sensitive?

What is the banks cost of preferred stock : Holdup Bank has an issue of preferred stock with a $5.05 stated dividend that just sold for $87 per share. What is the bank’s cost of preferred stock?

Estimate the unlevered value of the firm : Pennsylvania Steel, one of the largest steel companies in the united States, is considering whether it has any excess debt capacity. The company has $527 million in market value of debt outstanding and $1.76 billion of market value of equity. Estimat..

Suggestions included in mock survey conducted : What suggestions would you include in the next mock survey conducted?

How it is transmitted and manifested : Whether it is a genetic or other type of disease. How it is transmitted and manifested. The effects of lifestyle and age on the disease.

Calculate the approximate future value : Calculate the approximate future value (FV) at the end of year 5 for the following beginning of year payments: Year 1 = $1,000; Year 3 = $2,000; Year 4 = $3,000. The annual interest rate is 5%

What was the variance of crash-n-burns returns : You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 10 percent, –10 percent, 17 percent, 22 percent, and 10 percent. What was the variance of Crash-n-Burn’s returns over this period? What was the standard ..

User Account

All Pages