What is the total corporate value

Assignment Help Finance Basics

Reference no: EM132032337

Question: Pettit Printing Company has a total market value of $100 million, consisting of 1 million shares selling for $50 per share and $50 million of 10% perpetual bonds now selling at par. The company's EBIT is $11.03 million, and its tax rate is 15%. Pettit can change its capital structure either by increasing its debt to 60% (based on market values) or decreasing it to 40%. If it decides to increase its use of leverage, it must call its old bonds and issue new ones with a 12% coupon. If it decides to decrease its leverage, it will call in its old bonds and replace them with new 7% coupon bonds. The company will sell or repurchase stock at the new equilibrium price to complete the capital structure change. The firm pays out all earnings as dividends; hence, its stock is a zero growth stock. Its current cost of equity, rs, is 14%. If it increases leverage, rs will be 16%. If it decreases leverage, rs will be 13%. Present situation (50% debt): What is the firm's WACC? Round your answer to three decimal places. %

What is the total corporate value? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to three decimal places. $ million 60% debt

Reference no: EM132032337

Questions Cloud

What is the equivalent uniform annual worth : Petroleum Drilling, Inc., is considering installation of a new automated drilling equipment. The new equipment can be installed for $11,750,000 today.

How would you assess your socioeconomic status : How would you assess your socioeconomic status based on the measurements we discussed in class?

What is was the phillips curve : What is was the Phillips Curve? If the Fed seeks to exploit the Phillips Curve to stimulate the economy, what difference does it make whether the public forms.

Discuss at least two different such items : Describe (and cite) and discuss at least two different such items. Explain and cite what you have found, and describe how it connects to.

What is the total corporate value : Pettit Printing Company has a total market value of $100 million, consisting of 1 million shares selling for $50 per share and $50 million of 10% perpetual bond

What is the annual cash flow made by investment echo : Philip owns investment Echo and 1 share of stock Foxtrot. The total value of his holdings is $500. Stock Foxtrot has an annual expected return of 18.4 percent.

Demonstrate your understanding of theoretical perspectives : Demonstrate your understanding of theoretical perspectives of deviance and their application to social issues and problems.

What is the net income for the given firm : Pharrell, Inc., has sales of $598,000, costs of $260,000, depreciation expense of $64, 500, interest expense of $31, 500, and a tax rate of 40 percent.

What was the company net capital spending in given year : Petty driving school's 2013 balance sheet showed net fixed assets of $4.1 million and he 2014 balance sheet showed the next fixed assets of $4.9 million.

User Account

All Pages