Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Bluegrass Mint Company has a debt-equity ratio of 20 . The required return on the company's unlevered equity is 11.8 percent and the pretax cost

image text in transcribed
Bluegrass Mint Company has a debt-equity ratio of 20 . The required return on the company's unlevered equity is 11.8 percent and the pretax cost of the firm's debt is 5.6 percent. Sales revenue for the company is expected to remain stable indefinitely at last year's level of $18,700,000. Variable costs amount to 55 percent of sales. The tax rate is 21 percent and the company distributes all its earnings as dividends at the end of each year. a. If the company were financed entirely by equity, how much would it be worth? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) b. What is the required return on the firm's levered equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c-1. Use the weighted average cost of capital method to calculate the value of the company. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) c-2. What is the value of the company's equity? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) c-3. What is the value of the company's debt? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) d. Use the flow to equity method to calculate the value of the company's equity. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Governance And The Market For Corporate Control

Authors: John L. Teall

1st Edition

0415397863,1317834704

More Books

Students also viewed these Finance questions