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What is the present value of the common equity

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Question - Assume that XYZ, Inc. is a single asset firm that is expected to generate $5 million in net cash flows per year indefinitely. The firm's tax rate is 35%. After satisfying all mandatory obligations, all remaining FCF is distributed to common stockholders in the form of cash dividends. The appropriate cost of equity capital, to ABC, is 14%. The firm's target capital structure includes a mix of debt and common equity and interest paid on debt amounts of $500,000 and this amount is tax deductable. What is the present value of the common equity to the shareholders of XYX corporation?

A. $20,892,857

B. $2,925,000

C. $3,925,000

D. $4,925,000

Reference no: EM132796175

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