Bluegrass Mint Company has a debt-equity ratio of .35. The required return on the company's unlevered equity is 12.1 percent and the pretax cost of the firm's debt is 6.3 percent. Sales revenue for the company is expected to remain stable indefinitely at last year's level of $18.6 million. Variable costs amount to 60 percent of sales. The tax rate is 21 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) What is the required return on the firm's 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 company's debt?
(d) Use the flow to equity method to calculate the value of the
company's equity.
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Bluegrass Mint Company has a debt-equity ratio of .35. The required return on the company's unlevered...
Bluegrass Mint Company has a debt-equity ratio of .35. The required return on the company's unlevered equity is 12.1 percent and the pretax cost of the firm's debt is 6.3 percent. Sales revenue for the company is expected to remain stable indefinitely at last year's level of $18.6 million. Variable costs amount to 60 percent of sales. The tax rate is 21 percent and the company distributes all its earnings as dividends at the end of each year. (a) If the...
Mercer Inc. has a debt-to-equity ratio of 0.40. The required return on the company’s unlevered equity is 12%, and the pretax cost of the firm’s debt is 8%. Sales revenue for the company is expected to remain stable indefinitely at last year’s level of $18,000,000+$100,000. Variable costs (including SG & A expenses) are 65 percent of sales. The corporate tax rate is 26%+(1%). The company distributes all its earnings as dividends at the end of each year. a. If the company...
Mercer Inc. has a debt-to-equity ratio of 0.40. The required return on the company’s unlevered equity is 12%, and the pretax cost of the firm’s debt is 8%. Sales revenue for the company is expected to remain stable indefinitely at last year’s level of $18,300,000. Variable costs (including SG & A expenses) are 65 percent of sales. The corporate tax rate is 29%. The company distributes all its earnings as dividends at the end of each year. a. If the company...
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Dickson, Inc., has a debt-equity ratio of 2.3. The firm's weighted average cost of capital is 11 percent and its pretax cost of debt is 8 percent. The tax rate is 23 percent. a. What is the company's cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company's unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer...
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