Question
A consultant has collected the following information regarding Young Publishing: Total assets $3,000 million Tax rate 40% Operating income (EBIT) $800 million Debt ratio 0%
| A consultant has collected the following information regarding Young Publishing: | |||||||
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| Total assets | $3,000 million |
| Tax rate | 40% |
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| Operating income (EBIT) | $800 million |
| Debt ratio | 0% |
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| Interest expense | $0 million |
| WACC | 10% |
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| Net income | $480 million |
| M/B ratio | 1.00 |
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| Share price | $32.00 |
| EPS = DPS | $3.20 |
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| The company has no growth opportunities (g = 0), so the company pays out all of its earnings as dividends (EPS = DPS). The consultant believes that if the company moves to a capital structure financed with 20% debt and 80% equity (based on market values) that the cost of equity will increase to 11% and that the pre-tax cost of debt will be 10%. If the company makes this change, what would be the total market value (in millions) of the firm? | |||||||
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Enron And World Finance A Case Study In Ethics
Authors: P. Dembinski, C. Lager, A. Cornford, J. Bonvin
1st Edition
