Epsilon plc belongs to the retail industry and has a debt-to-equity ratio of 0.5. The average debt-to-equity ratio of the retail industry is 0.6 and the industry average beta is 2.22. The market risk premium is 5% and the risk free rate is 5%. Assume that all companies in this industry can issue debt at the risk free rate. Cash sales from Epsilons only project are expected to remain stable indefinitely at last years level of 20,000,000. Cash costs amount to 60% of sales and both sales and costs occur at the end of each period. The corporate tax rate is 20% and the company distributes all its earnings as dividends at the end of the year.

1. If Epsilon was financed entirely by equity, how much would it be worth?

2. Use the weighted average cost of capital method (WACC) to calculate the value of the

   company.

3. Use the flow to equity method(FTE) to calculate the value of the companys equity.

4. Use the adjusted present value method(APV) to calculate the value of the companys equity.

5. Which of the three methods (WACC, FTE and APV), in your opinion, is the best? Are the three methods consistent when a firm does not have a target debt-to-equity ratio? Explain.