1 Cross Town Cookies is an all equity firm with a total market value of $745,000 The firm has 46,000 shares of stock outstanding Management is considering issuing $176,000 of debt at an interest rate of 6 percent and using the proceeds to repurchase shares Before the debt issue, EBIT will be $66,800 What is the EPS if the debt is issued Ignore taxes $1 60 $ 99 $1 73 $1 85 $1 36 2 Pompeii Pizza Club owns three identical restaurants popular for their specialty pizzas Each restaurant has a debt equity ratio of 40 percent and makes interest payments of $62,000 at the end of each year The cost of the firms levered equity is 19 percent Each store estimates that annual sales will be $1 575 million annual cost of goods sold will be $845,000 and annual general and administrative costs will be $505,000 These cash flows are expected to remain the same forever The corporate tax rate is 25 percent a Use the flow to equity approach to determine the value of the companys equity (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e g , 1,234,567 89) b What is the total value of the company (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e g , 1,234,567 89) 3 Edwards Construction currently has debt outstanding with a market value of $86,000 and a cost of 7 percent The company has EBIT of $6,020 that is expected to continue in perpetuity Assume there are no taxes a 1 What is the value of the company's equity (Do not round intermediate calculations Leave no cell blank be certain to enter 0 wherever required ) a 2 What is the debt to value ratio (Do not round intermediate calculations and round your answer to the nearest whole number, e g , 32 ) b What are the equity value and debt to value ratio if the company's growth rate is 2 percent (Do not round intermediate calculations and round your Debt to value answer to 3 decimal places, e g , 32 161 ) c What are the equity value and debt to value ratio if the company's growth rate is 6 percent (Do not round intermediate calculations and round your Debt to value answer to 3 decimal places, e g , 32 161 )

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 29, 2024

1. Cross Town Cookies is an all-equity firm with a total market value of $745,000. The firm has 46,000 shares of stock outstanding. Management is

1. Cross Town Cookies is an all-equity firm with a total market value of $745,000. The firm has 46,000 shares of stock outstanding. Management is considering issuing $176,000 of debt at an interest rate of 6 percent and using the proceeds to repurchase shares. Before the debt issue, EBIT will be $66,800. What is the EPS if the debt is issued? Ignore taxes.

$1.60
$.99
$1.73
$1.85
$1.36

Pompeii Pizza Club owns three identical restaurants popular for their specialty pizzas. Each restaurant has a debt-equity ratio of 40 percent and makes interest payments of $62,000 at the end of each year. The cost of the firms levered equity is 19 percent. Each store estimates that annual sales will be $1.575 million; annual cost of goods sold will be $845,000; and annual general and administrative costs will be $505,000. These cash flows are expected to remain the same forever. The corporate tax rate is 25 percent.

a.	Use the flow to equity approach to determine the value of the companys equity. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)
b.	What is the total value of the company? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)

Edwards Construction currently has debt outstanding with a market value of $86,000 and a cost of 7 percent. The company has EBIT of $6,020 that is expected to continue in perpetuity. Assume there are no taxes.

a-1.

What is the value of the company's equity? (Do not round intermediate calculations. Leave no cell blank - be certain to enter "0" wherever required.)

a-2.	What is the debt-to-value ratio? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
b.	What are the equity value and debt-to-value ratio if the company's growth rate is 2 percent? (Do not round intermediate calculations and round your "Debt-to-value" answer to 3 decimal places, e.g., 32.161.)
c.	What are the equity value and debt-to-value ratio if the company's growth rate is 6 percent? (Do not round intermediate calculations and round your "Debt-to-value" answer to 3 decimal places, e.g., 32.161.)