Question
Thani Mint Company has a debt to equity ratio of 0.30. The required return on the companys unlevered equity is 15 percent, and the pretax
Thani Mint Company has a debt to equity ratio of 0.30. The required return on the companys unlevered equity is 15 percent, and the pretax cost of the firms debt is 9 percent. Sales revenue for the company is expected to remain stable indefinitely at last years level of $23,500,000. Variable costs amount to 60 percent of sales. The tax rate is 40 percent and the company distributes 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) Use the WACC method to calculate the value of the company under the current capital structure.
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