1 Milano Pizza Club owns three identical restaurants popular for their specialty pizzas. Each restaurant has a debt-to-equity ratio of 40 percent and makes interest payments of $50,000 at the end of each year. The cost of the firms levered equity is 15 percent. Each store estimates that annual sales will be $1.36 million, annual cost of goods sold will be $582,000, and annual general and administrative costs will be $388,000. These cash flows are expected to remain the same forever. The corporate tax rate is 40 percent.

a. Use the FTE approach to determine the value of the companys equity. (Round the answer to 2 decimal places. Omit $ sign in your response.)

Equity value $

b. What is the total value of the company? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.)

Total value $

2 a

If Wild Widgets Inc. were an all-equity company, it would have a beta of 1.45. The company has a target debt-to-equity ratio of 0.5. The expected return on the market portfolio is 10 percent, and Treasury bills currently yield 5.2 percent. The company has one bond issue outstanding that matures in 20 years and has a 9.4 percent coupon rate. The bond currently sells for $1,200. The corporate tax rate is 35 percent.

a. What is the companys cost of debt? (Do not round intermediate calculations. Round the final answer to 2 decimal places.)

Cost of debt %

b. What is the companys cost of equity? (Do not round intermediate calculations. Round the final answer to 2 decimal places.)

Cost of equity %

c. What is the companys WACC? (Do not round intermediate calculations. Round the final answer to 2 decimal places.)

WACC %