Use flow to equity approach to determine the value of equity

Assignment Help Financial Management
Reference no: EM131021123

Milano 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 $60,000 at the end of each year. The cost of the firm’s levered equity is 16 percent. Each store estimates that annual sales will be $1.68 million; annual cost of goods sold will be $860,000; and annual general and administrative costs will be $595,000. These cash flows are expected to remain the same forever. The corporate tax rate is 40 percent. Use the flow to equity approach to determine the value of the company’s equity. What is the total value of the company?

Reference no: EM131021123

Questions Cloud

According to popular opinion, u.s. trade deficits : According to popular opinion, U.S. trade deficits indicate any or all of the following: a lack of U.S. competitiveness owing to low productivity or low-quality products and/or lower wages, superior technology, and unfair trade practices by foreign co..
New bonds offer in order to sell at face value : General Matter's outstanding bond issue has a coupon rate of 8.4%, and it sells at a yield to maturity of 7.50%. The firm wishes to issue additional bonds to the public at face value. What coupon rate must the new bonds offer in order to sell at f..
What are the likely consequences of the tax subsidy : What are the likely consequences of the tax subsidy plan on Japan's trade balance, the value of the yen, and the competitiveness of Japanese firms?
Required rate of return for projects : The equipment has a life of ten years, after which time it will have no salvage value. Working capital is assumed to be fully recovered at the end of ten years. Depreciation is straight-line (no salvage) and National's tax rate is 45%. The require..
Use flow to equity approach to determine the value of equity : Milano 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 $60,000 at the end of each year. The cost of the firm’s levered equity is 16 p..
Consider alternative currency scenarios : Now, please consider alternative currency scenarios. Assume that the interest rates change and therefore the exchange rates vary ($, Y, DM and BP). Analyze the cases for the DM, Yen and $ currencies separately. In particular, calculate what the pr..
What implications does this huge investment : What implications does this huge investment have for Germany's current-account balance in the future?
Cost of equity to an unlevered firm : The Hatfields Corporation is a zero growth firm with an expected EBIT of $250,000 and corporate tax rate of 40 percent. Hatfields uses $1,000,000 of debt financing, and the cost of equity to an unlevered firm in the same risk class is 15%.
Upper management to review implementation results : Outline the control that will be used to monitor progress and allow upper management to review implementation results and spot products/and or services that are not

Reviews

Write a Review

Financial Management Questions & Answers

  Evaluating an extra dividend versus share repurchase

Wally’s Penguins is evaluating an extra dividend versus a share repurchase. In either case, $5,500 would be spent. Current earnings are $1 per share, and the stock currently sells for $27 per share. There are 2,500 shares outstanding. Ignore taxes an..

  What is the projects operating cash flow

eans ‘n More currently sells blue jeans and T-shirts. Management is considering adding fleece tops to their inventory to provide a cooler weather option. The tops would sell for $39 each and they expect to sell 6,000 per year. By adding the fleece to..

  Compute the financing cash flows for the current year

Blaylock Company earned net income of $900,000 in 2014. Blaylock provided the following information: Blaylock Company Comparative Balance Sheets At December 31, 2013 and 2014. Compute the financing cash flows for the current year.

  The risk free rate and expected rate on stocks

A company's stock has a beta of 1.15. The risk free rate is 4.72%, and the expected rate on stocks is 10%. If a share of this common stock has just paid a quarterly dividend of $.35, and the long-run growth rate is 5 percent, value this stock.

  How does an ipo differ from a seasoned equity offering

How does an IPO differ from a Seasoned Equity Offering? When the underwriters are acting under a firm commitment, what services do they provide for the private company attempting their IPO? How are the underwriters compensated for such services?

  Exercise the option during stated time periods

Which of the following option contracts gives a buyer the right, but not obligation, to exercise the option during stated time periods?

  What is the reward-to-volatility ratio for the equity fund

You manage an equity fund with an expected risk premium of 11% and a standard deviation of 24%. The rate on Treasury bills is 6.2%. Your client chooses to invest $80,000 of her portfolio in your equity fund and $20,000 in a T-bill money market fund. ..

  Given the quantitative theory of money a what happens to

1 given the quantitative theory of moneya what happens to real gdp if the money supply is cut in half velocity is

  Take advantage of a long term investment opportunity

Let's say that a company has actually reformed relatively well long term and an investor has reformed research and has made a decision to invest in a dividend paying organization. However, instead of aying out an increased dividend amount giving inve..

  What is the price of the bill as a percentage of face value

A Treasury bill purchased in December 2015 has 118 days until maturity and a bank discount yield of 2.13 percent. Assume a $100 face value. What is the price of the bill as a percentage of face value?

  Consider how an organization must manage cash-receivables

Consider how an organization must manage cash, receivables, and inventory. Which of the three variables is the most important to manage? Is one more susceptible to fraud and errors than the others? Explain your answer. How would a misstatement in eac..

  Is it better off to pay a loan monthly or annually

Assume a car loan amount of $100,000, with annual interest rate 3% and 5 years term. Calculate annual payment amount. Calculate monthly payment amount. Is it better off to pay a loan monthly or annually? Why?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd