Question

The Winter Wear Company has expected earnings before interest and taxes of $3,800, an unlevered cost of capital of 15.4 percent and a tax rate of 22 percent. The company also has $2,600 of debt with a coupon rate of 5.7 percent. The debt is selling at par value. What is the value of this form? $12,115 $17,700 $19,819 $15,585 $12,055

Answer 1

Hi, As per the HOMEWORKLIB RULES, in case of multiple questions, I need to solve the first question.

The amount is computed as shown below:

= [ [ Earnings before interest and tax x (1 - tax rate) ] / Unlevered cost of capital ] + Amount of debt x tax rate

= [ [ $ 3,800 x (1 - 0.22) ] / 0.154 ] + $ 2,600 x 22%

= $ 19,819 Approximately

I request you to please post remaining questions separately, since as per the guidelines in case of multiple questions, I need to solve the first question.

Feel free to ask in case of any query relating to this question