Underground Clothing is a zero growth firm that has expected earnings before interest and taxes of $56,700, an unlevered cost of

Question

3 years ago

10

Underground Clothing is a zero growth firm that has expected earnings before interest and taxes of $56,700, an unlevered cost of

capital of 16.2 percent, and a tax rate of 35 percent. The company also has $9,500 of debt that carries a coupon rate of 7 percent. The debt is selling at par value. What is the value of this firm

Business

1 answer:

koban [17] · Answer 1 · 2022-01-15T18:12:30+03:00

koban [17]3 years ago

7 0

Answer:

$230,825

Explanation:

VU = [$56,700 × (1 - .35)] / .162

VU= $56,700×0.65/.162

VU=36,855/.162

VU = $227,500

VL = $227,500 + .35($9,500)

VL= $227,500+$3,325

VL= $230,825