Question
Imagine two independently owned gas stations standing next to each other and selling gas (and other goods) at about the same price, so they have
Imagine two independently owned gas stations standing next to each other and selling gas (and other goods) at about the same price, so they have the same revenues, cost structure and effective tax rate of 35%. Assume that every year they have average EBIT of $ 500,000 (I know, it's quite optimistic) without any anticipated growth. One owner finances all operations out of own pocket, while another borrows $ 500,000 for five years and refinances this debt every five years without repaying principal.
Discuss the difference in value (if any) of these two stations.
I am having a hard time calculating the Value of each.
Thank you
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