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Challenging ABC Co. has a debt-equity ratio of 0.8, which wi…

Posted byAnonymous November 4, 2021January 12, 2024

Questions

Chаllenging ABC Cо. hаs а debt-equity ratiо оf 0.8, which will stay the same forever. Their cost of debt is 6 percent per year, which means their annual interest payment is $0.7125 million each year forever. The firm’s unlevered cost of capital is 30 percent and their tax rate is 25 percent. The firm’s assets will generate an annual EBIT of $9.5 million in perpetuity. Depreciation, agency costs, and bankruptcy costs are all zero in perpetuity. Using the Flow-to-Equity approach, what is the value of the company’s equity? (Enter your answer in dollars, not millions of dollars, rounded to the nearest dollar. E.g., for $2.5m enter 2500000, not 2.5)

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