Question

Milano Pizza Club owns three identical restaurants popular for their specialty pizzas. Each restaurant has a debt-equity ratio of 35 percent and makes interest payments of $46,000 at the end of each year. The cost of the firm's levered equity is 24 percent. Each store estimates that annual sales will be $1.4 million; annual cost of goods sold will be $720,000; and annual general and administrative costs will be $455,000. These cash flows are expected to remain the same forever. The corporate tax rate is 40 percent. a. Use the flow to equity approach to determine the value of the company's equity. (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Value of the company's equity b. What is the total value of the company? (Enter your answer in dollars, not millions of dollars, e.g. 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Value of the company

Answer 1

Statement showing celeulatiom of free cash flow to equity CFcFE) PARTICULAR AMT TotaL Sales <)Cost of Gioods sold CGiene al I Admin cost CInterest チ20,00 46,oo Pt before tax. (-).Tax. @ 40% 1,600 of equity FCFE of one store g → growth value of equit of Company : 94% Soo X 3 słonš 342,SO that means if Debt is 35, equityslo capita 135 totul

value of debt, eguity capitos Note the absence of xafio is used to calculate value of company Value, of company·Value of equity Equity to capited vatio 1,342, Soo