Question
Milano Pizza Club owns three identical restaurants popular for their specialty pizzas. Each restaurant has a debt-to-equity ratio of 40 percent and makes interest payments
Milano Pizza Club owns three identical restaurants popular for their specialty pizzas. Each restaurant has a debt-to-equity ratio of 40 percent and makes interest payments of $45,000 at the end of each year. The cost of the firms levered equity is 14 percent. Each store estimates that annual sales will be $1.31 million, annual cost of goods sold will be $559,500, and annual general and administrative costs will be $373,000. These cash flows are expected to remain the same forever. The corporate tax rate is 40 percent.
a. Use the FTE approach to determine the value of the companys equity. (Round the answer to 2 decimal places. Omit $ sign in your response.)
Equity value $
b. What is the total value of the company? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.)
Total value $
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started