Question
American Transmitter (AT) is a telecommunications firm that currently does not pay a dividend. The following information about AT has been gathered from various sources:
American Transmitter (AT) is a telecommunications firm that currently does not pay a dividend. The following information about AT has been gathered from various sources:
Average cost of funds 8.0 %
EBIT $ 600,000
Total capital $2,000,000
EPS $2.64
Shares outstanding 100,000
Marginal tax rate 40.0%
a. Compute the economic value added (EVA) for AT in the current operating period. Is AT a good investment?
b. Given the answer from part (a), compute the EVA dividend that AT could pay without harming the value of the firm.
c. Estimate the market price per share assuming that AT normally has a P/E ratio equal to 15x.
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Multinational Business Finance
Authors: David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett
15th edition
134796551, 134796550, 978-0134796550
