What is the firm worth unlevered

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Reference no: EM132064241

1. A price-weighted index consists of stocks A, B, and C which are priced at $50, $35, and $15 a share, respectively. The current index divisor is 2.75. What will the new index advisor be if stock A undergoes a 5-for-1 stock split?

A. 0.40

B. 0.65

C. 1.00

D. 1.65

E. 1.85

2. EPL, Inc. currently has an all-equity capital structure.? It has an expected perpetual operating income of EBIT=$1,250,000 per year and a corporate tax rate of TC=35%. The personal tax rate on debt is Tp=32% and the personal tax rate on equity is TpE=15%. Assume no financial distress costs. If equity investors require a return of rU=15% return on the after-tax cash flows of EPL when it is unlevered, what is the firm worth unlevered?

a. $690,625 b. $4,604,167 c. $3,130,833 d. $5,416,667

Reference no: EM132064241

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