Question
Sunshine Trading Company (STC) has an expected EBIT of $30,000 in perpetuity, and a tax rate of 40%. Interest rate on STCs debt is 8%,
Sunshine Trading Company (STC) has an expected EBIT of $30,000 in perpetuity, and a tax rate of 40%. Interest rate on STCs debt is 8%, and its return on equity is 13.12%. Debt-equity ratio of STC is 0.6, or 3/5. Blackstone Inc (BI) is an all-equity firm, which is identical to STC, except for the capital structure.
(1) What is the value of STC?
(2) What is the value of BI?
(3) What is the rate of return on BI shares?
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Advanced Accounting
Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik
10th edition
0-07-794127-6, 978-0-07-79412, 978-0077431808
