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 $37,000 at the end of each year. The cost of the firms levered equity is 16 percent. Each store estimates that annual sales will be $1.23 million, annual cost of goods sold will be $523,500, and annual general and administrative costs will be $349,000. 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.Alabaster Incorporated has a beta of 1.05, a cost of debt of 8% and a debt to value ratio of.7. The current risk-free rate is 3% and the market rate of return is 12.5%. What is the company's cost of equity capital?

12.97%

10.25%

13.13%

16.13%

8.13%

3.

Zoso is a rental car company that is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its rental cars over five years using the straight-line method. The new cars are expected to generate $145,000 per year in earnings before taxes and depreciation for five years. The company is entirely financed by equity and has a 30 percent tax rate. The required return on the companys unlevered equity is 12 percent, and the new fleet will not change the risk of the company.

a. What is the maximum price that the company should be willing to pay for the new fleet of cars if it remains an all-equity company? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.)

Maximum price $

b. Suppose the company can purchase the fleet of cars for $400,000. Additionally, assume the company can issue $265,000 of five-year, 6 percent debt to finance the project. All principal will be repaid in one balloon payment at the end of the fifth year. What is the APV of the project? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.)

Adjusted present value $

4.If Wild Widgets Inc. were an all-equity company, it would have a beta of 1.80. The company has a target debt-to-equity ratio of 0.2. The expected return on the market portfolio is 8 percent, and Treasury bills currently yield 5.9 percent. The company has one bond issue outstanding that matures in 20 years and has a 10.8 percent coupon rate. The bond currently sells for $1,270. 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. Omit % sign in your response.)

Cost of debt %

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

Cost of equity %

c. What is the companys WACC? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit % sign in your response.)

WACC %