Question
B&B is a firm in the furniture industry. Its revenues will be $10m, its costs (not including depreciation) will be $2m, depreciation will be $2m,
B&B is a firm in the furniture industry. Its revenues will be $10m, its costs (not including depreciation) will be $2m, depreciation will be $2m, and capital expenditures will be $2m. All of these figures (including Capex) accrue at the end of this year. Moreover, these figures are expected to remain constant each year for the foreseeable future. The firm has a 20% debt-to-value ratio and pays 8% on its debt. B&B plans to maintain this ratio of debt-to-value forever. The firm has 1m shares outstanding. You have no further information about B&B. However, you have the following information about ABC, a firm that is also in the furniture industry:
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