Question
Mojito Mint Company has a debt-equity ratio of 0. 35. The required return on the companys unlevered equity is 12. 8 percent, and the pretax
Mojito Mint Company has a debt-equity ratio of 0. 35. The required return on the companys unlevered equity is 12. 8 percent, and the pretax cost of the firms debt is 6.5 percent Sales revenue for the company is expected to remain stable indefinitely at last years level of S17, 500,000 Variable costs amount to 60 percent of sales. The tax rate is 40 percent, and the company distribute 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 b)What is the required return on the firms levered equity? c) Use the weighted average cost of capital method to calculate the value of the company. What is the value of the company's equity? What is the value of the companys debt? d)Use the flow to equity method to calculate the value of the companys equity
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