Question

Problem 18-3 FTE Pompeii 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 $61,000 at the end of each year. The cost of the firm's levered equity is 18 percent. Each store estimates that annual sales will be $1.56 million; annual cost of goods sold will be $840,000; and annual general and administrative costs will be $500,000. These cash flows are expected to remain the same forever. The corporate tax rate is 24 percent a. Use the flow to equity approach to determine the value of the company's equity. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) b. What is the total value of the company? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) Value of the company's equity a. b. Value of the company

Answer 1

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PE EPS, STOCK DIVIDEND-Microsoft Excel File Home Insert Page Layout Formulas Data Review View Add-Ins - Cut AutoSum A A General Wrap Text Calibri 11 Fill Copy A Merge & Center Conditional Format Insert Delete Format Paste BIU S % 8 Formatting Cell Sort & Find & er Select 2 Clear Format Painter ble Styles Clipboard Font Alignment Number Shules Cells Editing EC446 EC DU DV DW DX DY DZ EA FB ED EE FEF EG FLOW TO EQUITY METHOD 443 444 INCOME STATEMENT 4680000 [1560000 X 3] 2520000 [840000 X 3] 445 SALES 446 COGS 1500000 [500000 X 3] 447 G& A COSTS 448 EBIT 660000 183000 [61000 X 3] 449 INTEREST 450 EBT 477000 451 TAX 114480 452 362520 NET INCOME 453 NET INCOME/ke 454 VALUE OF EQUITY = 455 2014000.00 [362520/0.18] VALUE OF EQUITY = 456 457 h NOW DEBT TO EQUITY RATIO -0.35 DEBT/2014000= 458 0.35 459 DEBT VALUE OF COMPANY 460 VALUE OF DEBT +VALUE OF EQUITY 461 704900 2014000= 2718900.00 PB ROPI APV ROSSprice quoteEVA MVA LEVERAGED BUY SWAP HEV PE EPS DIVABNORMAL deberk CAP GAIN 130 % MARGIN MONEY 14 marginal tax distress BRIGHAN Re erences: AL125 04:42 W ENG 13-06-2019