Question

L.A. Clothing has expected earnings before interest and taxes of
**$**2,300, an unlevered cost of capital of 12 percent
and a tax rate of 33 percent. The company also has $2,900 of debt
that carries an 8 percent coupon. The debt is selling at par value.
What is the value of this firm?

Answer #1

**Given,**

**EBIT = $2300**

**Unlevered cost of capital = 12% or 0.12**

**Tax rate = 33% or 0.33**

**Debt = $2900**

**Solution :-**

**Unlevered value = [EBIT x (1 - tax rate)]
unlevered cost of capital**

**= [$2300 x (1 - 0.33)]
0.12**

**= [$2300 x 0.67]
** **0.12**

**= $1541
0.12 = $12841.67**

**Value of the firm = Unlevered value + (debt x tax
rate)**

**= $12841.67 + ($2900 x 0.33)**

**= $12841.67 + $957 = $13798.67**

Heinz Incorporation has expected earnings before interest and
taxes of $2,843,270, an unlevered cost of capital of 10.2 percent,
and a tax rate of 25 percent. The company has $7,900,000 of debt
that carries a 6.6 percent coupon. The debt is selling at par
value. What is the value of this company? $24,412,506 $23,756,980
$22,881,397 $20,362,114 $25,644,382

Hanover Industries has expected earnings before interest and
taxes of $630,300, an unlevered cost of equity of 14.7 percent, and
a combined tax rate of 23 percent. The company also has 11,000
senior bonds outstanding that carry a coupon rate of 7 percent. The
debt is selling at par value. What is the value of this company?
What is the target capital structure of the firm if the levered
cost of equity is 17.25? Assume MM with taxes holds.

Hanover Industries has expected earnings before interest and
taxes of $630,300, an unlevered cost of equity of 14.7 percent, and
a combined tax rate of 23 percent. The company also has
11,000senior bonds outstanding that carry a coupon rate of 7
percent. The debt is selling at par value. What is the value of
this company? What is the target capital structure of the firm if
the levered cost of equity is 17.25? Assume MM with taxes
holds.

5. Hanover Industries has expected earnings before interest and
taxes of $630,300, an unlevered cost of equity of 14.7 percent, and
a combined tax rate of 23 percent. The company also has 11,000
senior bonds outstanding that carry a coupon rate of 7 percent. The
debt is selling at par value. What is the value of this company?
What is the target capital structure of the firm if the levered
cost of equity is 17.25? Assume MM with taxes holds.

Jemisen's firm has expected earnings before interest and taxes
of $1,400. Its unlevered cost of capital is 13 percent and its tax
rate is 34 percent. The firm has debt with both a book and a face
value of $1,800. This debt has a 7 percent coupon and pays interest
annually. What is the firm's weighted average cost of capital?
A) 12.03 percent
B) 12.88 percent
C) 12.50 percent
D) 11.97 percent
E) 12.20 percent

An unlevered firm has a cost of capital of 16% and earnings
before interest and taxes of $225,000. A levered firm with the same
operations and assets has both a book value and a face value of
debt of $850,000 with an 8% annual coupon. Assume no taxes, no
bankruptcy. What is the value of equity for the levered firm?
Select one:
A. 624,250
B. 556,250
C. 850,000
D. 556,250

Blaine Shoes, an unlevered firm, has a cost of capital of 15
percent and earnings before interest and taxes of $500,000. Salem
Shoes, A levered firm, has the same operations and assets has face
value of debt of $7000,000 with a coupon rate of 7.5 percent that
sells at par. The applicable tax rate is 35 percent. What is the
value of the levered firm?

A company has an unlevered cost of capital of 12 percent, a tax
rate of 34 percent, and expected earnings before interest and taxes
of $1,300. The company has $2,200 in bonds outstanding that have an
8 percent coupon and pay interest annually. The bonds are selling
at par value.
What is the cost of equity?
How do you calculate this?

NCI, an unlevered
firm, has expected earnings before interest and taxes of $2 million
per year. NCI's tax rate is 40%, and the market value is V=E=$12
million. The stock has a beta of 1.00, and the risk free rate is
9%. [Assume that market risk premium is 6%. Management
is considering the use of debt; debt would be issued and used to
buy back stock, and the size of the firm would remain constant. The
default free interest...

(urgent!!) Wholesale Supply has earnings before interest and
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is 13.6 percent while the pretax cost of debt is 7.4 percent. The
tax rate is 21 percent. What is the weighted average cost of
capital? (Hint: Find RE first)

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