Valuing levered firm

Assignment Help Business Management
Reference no: EM133272623

Valuing a Levered Firm

A company has a debt-to-equity ratio of 0.55. The required return on the company's unlevered equity is 15 percent, and the pre-tax cost of the firm's debt is 8 percent. Sales revenue for the company is expected to remain stable indefinitely at last year's level of $23,200,000. Variable costs amount to 75 percent of sales. The tax rate is 35 percent, and the company distributes all its earnings as dividends at the end of each year.

1. If the company were financed entirely by equity, how much would it be worth?

2. What is the required return on the firm's levered equity (assume no bankruptcy costs)?

3. Use the WACC method to calculate the value of the company. What is the value of the company's equity? What is the value of the company's debt?

4. Use the FTE method to calculate the value of the company's equity.

Reference no: EM133272623

Questions Cloud

What is nominal cost of its nonfree trade credit : What is the nominal cost of its nonfree trade credit? Assume a 365-day year.
The traditional Initial Public Offering process : The traditional Initial Public Offering (IPO) process includes all of the following EXCEPT
Shi import-export balance sheet : Shi Import-Export's balance sheet shows $300 million in debt, $50 million in preferred stock, and $250 million in total common equity.
With us awash in natural gas as result of fracking : With the US awash in natural gas as a result of fracking, Armadillo Gas decided to build a liquefied natural gas plant on the Gulf Coast to export gas.
Valuing levered firm : If the company were financed entirely by equity, how much would it be worth? What is the required return on the firm's levered equity.
Corporate finance situation to improve firm value : Explain two situations where signaling behavior may be used in a corporate finance situation to improve firm value.
Lots of interesting product innovations : Lots of interesting product innovations that were initiated through crowdfunding portals, especially "KickStarters." Besides being a good tool for testing the m
Ready-to-wear clothes so you can earn extra money : Assume you are to set up a small business-say a simple buy and sell of ready-to-wear clothes so you can earn extra money
Vanguard value index fund : Vanguard Value Index Fund (a high B/M index fund) delivered 16%. Therefore I am a better stock picker and a great money manager

Reviews

Write a Review

Business Management Questions & Answers

  Would you consider sales as a part of business strategy

1. Would you consider sales as a part of business strategy? 2. How should company strategy be used in developing the sales structure?

  Drawbacks of multi-tasking while driving

Research shows that drivers talking of the phone while driving, even with the use of a hands-free headset, are four times more likely to crash than non-chatters

  Trade-offs between global integration-local responsiveness

Explain the trade-offs between global integration and local responsiveness. Use the global integration and local responsiveness level to measure the export, sta

  Differentiate between the concepts of marketing and sales

Assignment: Ethical Concerns in Marketing and Sales. This assignment will assess Competency 1: Differentiate between the concepts of marketing and sales

  Student hates studying both economics and history

A question says that a student hates studying both economics and history. The more time he spends studying either subject

  How does the international trade affect economic well-being

How Does the international trade affect economic well-being, who gains and who loses from free trade among countries, and how do the gains compare to the losses

  What is the net investment outlay

a. What is the Net Investment outlay? b. What are the cash flows over the life of equipment?

  Clearly define the customer information

Clearly define the Customer information will you need to capture and send to your Marketing database to support your Loyalty Program about spud.ca company

  Approaches for constraining cost growth

Please conclude your memo with your analysis of the most promising approaches for constraining cost growth while maintaining or improving quality

  Compensation universally excessive or appropriate

Is executive compensation universally excessive or appropriate? Defend your answer and discuss.

  Management to governance in international economic relations

The transition from management to governance in international economic relations has been said to have gone through three phases, according to Spero and Hart:

  Exposure to exchange rate risk

Explain how you could use foreign financing for your business in a manner that would reduce your exposure to exchange rate risk. Be specific.

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