1 answer

18. Firm Value Cavo Corporation expects an EBIT of $26,850 every year forever The company currently...

Question:

18. Firm Value Cavo Corporation expects an EBIT of $26,850 every year forever The company currently has no debt, and its cost of equity is 14 percent. The tax rate is 35 percent. a. What is the current value of the company? b. Suppose the company can borrow at 8 percent. What will the value of the company bo if it takes on debt equal to 50 percent of its unlevered value? What if it takes on equal to 100 percent of its unlevered value? c. What will the value of the company be if it takes on debt equal to 50 percent its levered value? What if the company takes on debt equal to 100 percent of of levered value?
18. Firm Value Cavo Corporation expects an EBIT of $26,850 every year forever The company currently has no debt, and its cost of equity is 14 percent. The tax rate is 35 percent. a. What is the current value of the company? b. Suppose the company can borrow at 8 percent. What will the value of the company bo if it takes on debt equal to 50 percent of its unlevered value? What if it takes on equal to 100 percent of its unlevered value? c. What will the value of the company be if it takes on debt equal to 50 percent its levered value? What if the company takes on debt equal to 100 percent of of levered value?

Answers

Ans-

1)current value of the company:

V​​​​​​f​​​​​=Earnings after tax/K​​​​​​o

V​​​​​​f =value of the firm

K​​​​​​o​​​​​ =cost of the capital

V​​​​​​f​​​​​ =$26,850(1-0.35)/0.14

V​​​​​​f​​​​​ =$124,660(approx)

b)

value o the companydetbl 50% op ts untivered value unliveved value e $ia«,cco (As puNa) value ot Uhe debt - sof, op 124,0 $CQ, 330 coupon γ@ke ís 8r Interest expense-$62,33,xt 4q86 一 26,850 C986 21186y 765 2) EBIT EBT Toor@ 35 PAT 14,212 - $62,330 PAT Ke f 62.330 + 212 0.14

C)

c) 261856 し16,240) 栏BIT 8120 18/720 (6ss5) 1217S EBT 6897 PAT. y, 88, 472, F2031017 682 す252,-281. cage colcT lo0t of Leued value 203,ol7 caser 203r7 8 6/240 coge IL

.

Similar Solved Questions

1 answer
As ( Homework: HW 2: Forecast II Save Score: 0 of 1 pt elati 4 of...
as ( Homework: HW 2: Forecast II Save Score: 0 of 1 pt elati 4 of 14 (7 complete) Problem 4.13 HW Score: 40.44%, 6.07 of 15 pts Question Help nom As you can see in the following table, demand for heart transplant surgery at Washington General Hospital has increased steadily in the past few years ds ...
1 answer
Snyder Corporation manufactures drill bits and has provided the following data for 2018 as well as...
Snyder Corporation manufactures drill bits and has provided the following data for 2018 as well as 2017. 2018 2017 Output units 4,800 4,000 Direct manufacturing labor 4,000 4,000 Wages per hour $50 $40 Direct materials used 32,000 25,000 Direct materials co...
1 answer
Pinnacle Corporation acquired all of Stengl Corporation's common stock by issuing 350,000 shares of $1 par...
Pinnacle Corporation acquired all of Stengl Corporation's common stock by issuing 350,000 shares of $1 par common stock with a current market value of $8,000,000. Related accountants' and attorneys' fees were $300,000, paid in cash. The total book value of Stengl's shareholders' ...
1 answer
Any ideas. I'm stuck and need help A 20Ohm coil of 15 turns and radius 10.0...
Any ideas. I'm stuck and need help A 20Ohm coil of 15 turns and radius 10.0 cm surrounds a long solenoid of radius 5.0 cm and 1000 turns/meter (see figure below). The current in the solenoid changes as I = b sin (a t), where I is in amperes and t is in seconds. Let a = 120 rad/s and b = 6 A. ...
1 answer
The nurse is caring for an adolescent in the emergency department. The parents report the child...
The nurse is caring for an adolescent in the emergency department. The parents report the child was fine yesterday. This morning the child complained of fever, joint pain, headache, and vomiting. On assessment, the nurse finds nuchal rigidity and a petechial rash. What should the nurse suspect...
1 answer
Indicate whether a debit or credit decreases the normal balance of each of the following accounts....
Indicate whether a debit or credit decreases the normal balance of each of the following accounts. Decrease Normal Balance Credit Debit a. Factory b. Fuel Expense C. Rent Expense d. Rent Payable e. Furniture f. Land g. Equipment h. Common Stock i. Interest Payable j. Delivery Expense k. Postage Expe...
1 answer
What are the advantages for employees of claiming that someone doing work for them is an independ...
what are the advantages for employees of claiming that someone doing work for them is an independent contractor rather than an employer what generally makes a worker classified as an "independent contractor"?...
1 answer
(1 point) A normal distribution with mean u and variance o2 is independently sampled three times,...
(1 point) A normal distribution with mean u and variance o2 is independently sampled three times, yielding values X1, X2, and X3 . Consider the three estimators în1 = x1 + 4x2, Û2 = x1 – x2 + x3 , and из şx2 + 3x2 + zxz Find the expected value of each estimator (ty...
1 answer
A sample of an ideal gas has a volume of 3.20 L at 15.00 ∘C and...
A sample of an ideal gas has a volume of 3.20 L at 15.00 ∘C and 1.80 atm. What is the volume of the gas at 22.20 ∘C and 0.986 atm?...
1 answer
Review the Unit 9 Assignment requirements and respond to the following questions: State your chosen topic....
Review the Unit 9 Assignment requirements and respond to the following questions: State your chosen topic. What is one specific legal issue related to your chosen topic? What is one specific ethical issues related to your chosen topic? Share a court case related to your chosen topic. Why did you ch...
1 answer
Materials science se Objcetive: Introduce fundamental DELL 3. (15 points). The accompanying figure shows a unit...
Materials science se Objcetive: Introduce fundamental DELL 3. (15 points). The accompanying figure shows a unit cell for a hypothetical metal. l0 90°i 0.45 mm 90%- 0.35 nm トー0.35 nm- 3.1. The crystal structure is a. BCT c. BCO b. ВСС d. FCC 3.2. If atomic weight i...
1 answer
An object with a mass of #6 kg#, temperature of #50 ^oC#, and a specific heat of #19 J/(kg*K)# is dropped into a container with #24 L # of water at #0^oC #. Does the water evaporate? If not, by how much does the water's temperature change?
An object with a mass of #6 kg#, temperature of #50 ^oC#, and a specific heat of #19 J/(kg*K)# is dropped into a container with #24 L # of water at #0^oC #. Does the water evaporate? If not, by how much does the water's temperature change?...
1 answer
A clock has a minute hand that is 12cm long. a. What is the angular speed...
A clock has a minute hand that is 12cm long. a. What is the angular speed of the minute hand? Give your answer in radians per second. Give an exact answer. (Hint: how long does the minute hand take to make a complete rotation?) b. What is the linear speed of the tip of the minute hand? Give an exact...
1 answer
QUESTION 40 A larpe curved Dam is created by rotating the triangle shape BCD through an...
QUESTION 40 A larpe curved Dam is created by rotating the triangle shape BCD through an angle of 60"radions) about vertical axis -9. The drawing is not to scale. -1035ft- 100ft dB 35 1 000ft Determine the Surface Area of the Dam's downstream face (created by the revolution of line DB). 105 (...
1 answer
Outline a research design using observation for each of the following situations: A bank wishes to...
Outline a research design using observation for each of the following situations: A bank wishes to collect data on the number of customer services and the frequency of customer use of these services. A state government wishes to determine the driving public’s use of seat belts. A researcher w...
1 answer
A simple random sample of 60 items resulted in a sample mean of 69. The population...
A simple random sample of 60 items resulted in a sample mean of 69. The population standard deviation is 15. a. Compute the 95% confidence interval for the population mean (to 1 decimal). b. Assume that the same sample mean was obtained from a sample of 120 items. Provide a 95% confidence interval f...
1 answer
8-12 U uturucu Ur unsaturated? A compound has a solubility in water of 40 g/L at...
8-12 U uturucu Ur unsaturated? A compound has a solubility in water of 40 g/L at 0°C. If 62 g of this compound is added to 1.5 L of water at 0°C, is the resulting solution saturated or unsaturated?...