Milano Pizza owns three identical restaurants popular for their specialty pizzas. Each restaurant has a debtequity ratio
Question:
Milano Pizza owns three identical restaurants popular for their specialty pizzas. Each restaurant has a debt–equity ratio of 40 per cent and makes interest payments of
€29,500 at the end of each year. The cost of the firm’s levered equity is 19 per cent. Each store estimates that annual sales will be €1 million; annual cost of goods sold will be
€450,000; and annual general and administrative costs will be €325,000. These cash flows are expected to remain the same forever. The corporate tax rate is 37.2 per cent.
(a) Use the flow to equity approach to determine the value of the company’s equity.
(b) What is the total value of the company?
Step by Step Answer:
Corporate Finance
ISBN: 9780077173630
3rd Edition
Authors: David Hillier, Stephen A. Ross, Randolph W. Westerfield, Bradford D. Jordan, Jeffrey F. Jaffe