You are given the following information:

La Brasserie Rapide Inc. has been in existence for only two years, and its stock is

currently trading at $20 per share (There are 100,000 shares outstanding.) The following

are the most recent financial statements of the company

P&L in $

Revenues 1,000,000

- Expenses 400,000

- Depreciation 100,000

EBIT 500,000

- Interest Expense 100,000

Taxable Income 400,000

- Tax 160,000

Net Income 240,000

Balance Sheet in $

Assets Liabilities

Property, Plant & Equipment 1,500,000 Accounts Payable 500,000

Land & Buildings 500,000 Long Term Debt 1,000,000

Current Assets 1,000,000 Equity 1,500,000

Total 3,000,000 Total 3,000,000

The debt is not traded, but its estimated market value is 125% of face (book) value. Due

to its limited history, the beta of the stock cannot be estimated from past prices. You do

have information about comparable listed firms and their betas

Firm Beta Debt/Equity Ratio

KFC 1.05 20%

Mc Donald's 1.2 50%

Fast-Food 0.9 10%

Roy Rogers 1.35 70%

(The comparable firms all have the same tax rate as La Brasserie Rapide). You can

assume that the market risk premium is 5.5%.

As general information, you have also collected data on interest coverage ratios, ratings

and interest rate spreads and they are summarized below: