Question
Antonio's accounting firm has an unlevered beta of 1.1. In a good year (which happens 47% of the time), his EBIT is $268,426. In other
Antonio's accounting firm has an unlevered beta of 1.1. In a good year (which happens 47% of the time), his EBIT is $268,426. In other years, his EBIT is $165,120. His firm has a debt to equity ratio of 1.2, and a cost of debt of 6.2%. If the riskless rate is 2.3%, the tax rate is 25% and the expected return on the S&P500 is 11.4%, what price would Antonio be willing to sell his business for if the next yearly cash flow is one year from today and these cash flows will continue for the foreseeable future? Use the WACC method and show all calculations.
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