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American Electric Powers (AEP) reported sales are $17.5 million which investors expect to continue forever. The required return on AEPs unleveredequity is 13%, and it
American Electric Powers (AEP) reported sales are $17.5 million which investors expect to continue forever. The required return on AEPs unleveredequity is 13%, and it has a single B-rated bond issue with a pre-tax yield to maturity of 7%. The value of this bond issue, relative to the market value of AEPs equity, is 35%. Total operating costs are 60% of sales, and its tax rate is 40%. Using the WACC approach, the enterprise value (EV) of AEP is closest to:
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