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AAA Inc. is a levered firm, and ZZZ Inc. is an unlevered firm. They are exactly the same in every possible way, however they have
AAA Inc. is a levered firm, and ZZZ Inc. is an unlevered firm. They are exactly the same in every possible way, however they have different capital structures. AAA Inc. and ZZZ Inc. each expect to generate $12.2 million in earnings before Interest and taxes, every year, In perpetulty. Both AAA Inc. and ZZZ Inc. do not retain any net Income and distribute all of it as dividends to their stockholders. Levered AAA Inc. has debt with neverending Interest payments which has the current market value of $70 million and has an annual Interest rate of 6 percent. Also, AAA Inc. has 2.8 million shares outstanding, and each share sells for $86 In the market. Unlevered ZZZ Inc. has no debt, 4.5 million shares outstanding, and each share goes for $72 In today's market. Both AAA Inc. and ZZZ Inc. do not pay taxes on their Income. Calculate the equity value of each company. (Do not round Intermedlate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) Unlevered Levered
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