In: Finance
The Walt Disney Company just issued $195,000 of perpetual 9% debt and used the proceeds to
repurchase stock. The company expects to generate $83,000 of EBIT in perpetuity. The company
distributes all its earnings as dividends at the end of each year. The firm’s unlevered cost of
capital is 15 percent, and the corporate tax rate is 40 percent.
a. What is the value of the company as an unlevered firm?
b. Use the APV method to calculate the value of the company with leverage.
c. What is the required return on the firm’s levered equity assuming a debt-to-equity ratio of
0.9070?
d. Use the FTE method to calculate the value of the company’s equity.