Question

Bluegrass Mint Company has a debt-equity ratio of .40. The required return on the company’s unlevered...

Bluegrass Mint Company has a debt-equity ratio of .40. The required return on the company’s unlevered equity is 13.4 percent and the pretax cost of the firm’s debt is 7.2 percent. Sales revenue for the company is expected to remain stable indefinitely at last year’s level of $20,300,000. Variable costs amount to 55 percent of sales. The tax rate is 22 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? (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 required return on the firm’s levered equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
c-1. Use the weighted average cost of capital method to calculate the 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)
c-2. What is 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)
c-3. What is the value of the company’s debt? (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)
d. Use the flow to equity method to calculate 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)

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Bluegrass Mint Company has a debt-equity ratio of .20. The required return on the company’s unlevered...
Bluegrass Mint Company has a debt-equity ratio of .20. The required return on the company’s unlevered equity is 11.8 percent and the pretax cost of the firm’s debt is 5.6 percent. Sales revenue for the company is expected to remain stable indefinitely at last year’s level of $18,700,000. Variable costs amount to 55 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...
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 5.9 percent. Sales revenue for the company is expected to remain stable indefinitely at last year’s level of $19,000,000. Variable costs amount to 60 percent of sales. The tax rate is 24 percent and the company distributes all its earnings as dividends at the end of each year.    a. If...
Bluegrass Mint Company has a debt-equity ratio of .45. The required return on the company’s unlevered...
Bluegrass Mint Company has a debt-equity ratio of .45. The required return on the company’s unlevered equity is 12.3 percent and the pretax cost of the firm’s debt is 6.1 percent. Sales revenue for the company is expected to remain stable indefinitely at last year’s level of $19,200,000. Variable costs amount to 65 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...
Mojito Mint Company has a debt–equity ratio of .25. The required return on the company’s unlevered...
Mojito Mint Company has a debt–equity ratio of .25. The required return on the company’s unlevered equity is 12 percent, and the pretax cost of the firm’s debt is 8.6 percent. Sales revenue for the company is expected to remain stable indefinitely at last year’s level of $19,100,000. Variable costs amount to 75 percent of sales. The tax rate is 40 percent, and the company distributes all its earnings as dividends at the end of each year.    a. If...
A company has a single zero coupon bond outstanding that matures in five years with a...
A company has a single zero coupon bond outstanding that matures in five years with a face value of $42 million. The current value of the company’s assets is $32 million and the standard deviation of the return on the firm’s assets is 38 percent per year. The risk-free rate is 4 percent per year, compounded continuously.    a. What is the current market value of the company’s equity? (Do not round intermediate calculations and enter your answer in dollars,...
Mojito Mint Company has a debt–equity ratio of .40. The required return on the company’s unlevered...
Mojito Mint Company has a debt–equity ratio of .40. The required return on the company’s unlevered equity is 14 percent, and the pretax cost of the firm’s debt is 8.5 percent. Sales revenue for the company is expected to remain stable indefinitely at last year’s level of $19,000,000. Variable costs amount to 70 percent of sales. The tax rate is 35 percent, and the company distributes all its earnings as dividends at the end of each year I can't figure...
Dickson, Inc., has a debt-equity ratio of 2.2. The firm’s weighted average cost of capital is...
Dickson, Inc., has a debt-equity ratio of 2.2. The firm’s weighted average cost of capital is 9 percent and its pretax cost of debt is 6 percent. The tax rate is 21 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...
Dickson, Inc., has a debt-equity ratio of 2.35. The firm’s weighted average cost of capital is...
Dickson, Inc., has a debt-equity ratio of 2.35. The firm’s weighted average cost of capital is 12 percent and its pretax cost of debt is 9 percent. The tax rate is 24 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...
Pompeii Pizza Club owns three identical restaurants popular for their specialty pizzas. Each restaurant has a...
Pompeii Pizza Club owns three identical restaurants popular for their specialty pizzas. Each restaurant has a debt-equity ratio of 40 percent and makes interest payments of $58,000 at the end of each year. The cost of the firm’s levered equity is 19 percent. Each store estimates that annual sales will be $1.515 million; annual cost of goods sold will be $825,000; and annual general and administrative costs will be $485,000. These cash flows are expected to remain the same forever....
Blitz Industries has a debt-equity ratio of .7. Its WACC is 8.9 percent, and its cost...
Blitz Industries has a debt-equity ratio of .7. Its WACC is 8.9 percent, and its cost of debt is 6.2 percent. The corporate tax rate is 21 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 as a percent rounded...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT