Levered Brothers, Inc. has a debt/equity ratio, D/E (in market value terms), of one. The equity has

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Levered Brothers, Inc. has a debt/equity ratio, D/E (in market value terms), of one. The equity has a beta of one, and the market risk premium, over and above the risk-free rate, is 9%. The corporate tax rate for the company, T_C, is 40%. The company is expected to generate annual free cash flows of $215 million, every year indefinitely. The current weighted average cost of capital for the company is 15%.

What would be the unlevered value of the company, V_u, (i.e. the value of the company if the company is 100% equity financed)?

a.860.0 million

b.688 million

c.1666.7 million

d.1146.7 million

e.1433.3 million

Posted Date: Jun 10, 2024 09:55 AM

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Levered Brothers, Inc. has a debt/equity ratio, D/E (in market value terms), of one. The equity has

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