Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Bluegrass Mint Company has a debt-equity ratio of .25. The required return on the companys unlevered equity is 13.1 percent and the pretax cost of

Bluegrass Mint Company has a debt-equity ratio of .25. The required return on the companys unlevered equity is 13.1 percent and the pretax cost of the firms debt is 6.9 percent. Sales revenue for the company is expected to remain stable indefinitely at last years level of $20,000,000. Variable costs amount to 65 percent of sales. The tax rate is 24 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 firms 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 companys 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 companys 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 companys 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_2

Step: 3

blur-text-image_3

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

The Oxford Handbook Of Sovereign Wealth Funds

Authors: Douglas J. Cumming, Geoffrey Wood, Igor Filatotchev, Juliane Reinecke

1st Edition

0198754809, 978-0198754800

More Books

Students also viewed these Finance questions

Question

5. Have you stressed the topics relevance to your audience?

Answered: 1 week ago