Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Bluegrass Mint Company has a debt-equity ratio of .45. The required return on the company's unlevered equity is 13.5 percent and the pretax cost of

image text in transcribed
image text in transcribed
Bluegrass Mint Company has a debt-equity ratio of .45. The required return on the company's unlevered equity is 13.5 percent and the pretax cost of the firm's debt is 7.3 percent. Sales revenue for the company is expected to remain stable indefinitely at last year's level of $20,400,000. Variable costs amount to 65 percent of sales. The tax rate is 23 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- What is the value of the company's equity? (Do not round intermediate calculations 2. and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) c. What is the value of the company's debt? (Do not round intermediate calculations 3. 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) --- 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. What is the value of the company's equity? (Do not round Intermediate calculations 2. and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g. 1,234,567.89) - What is the value of the company's debt? (Do not round intermediate calculations 3. 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) $ $ 40.724.444.44 15.65% a. Value of the company b. Required return c-1. Value of the company c-2 Value of equity C-3. Value of debt d. Value of equity

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered 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

Corporate Finance

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe

10th edition

978-0077511388, 78034779, 9780077511340, 77511387, 9780078034770, 77511344, 978-0077861759

More Books

Students also viewed these Finance questions