Question

In: Finance

Coffeez has expected EBIT of $21,300. It has an unlevered cost of capital of 14.2 percent,...

Coffeez has expected EBIT of $21,300. It has an unlevered cost of capital of 14.2 percent, and debt with both a book and face value of $113,200. The coupon rate of debt is 10.15 percent and the tax rate is 21 percent. What is the value of this company?

Group of answer choices

184,356

176,002

139,555

142,272

154,260

Solutions

Expert Solution

Compute the net operating profit after taxes (NOPAT), using the equation as shown below:

NOPAT = EBIT*(1 – Tax rate)

              = $21,300*(1 – 0.21)

              = $16,827

Hence, the NOPAT is $16,827.

Compute the value of the company, using the equation as shown below:

Company’s Value = (NOPAT/ Cost of capital) + (Debt value*Tax rate)

                              = ($16,827/ 14.2%) + ($113,200*21%)

                              = $118,500 + $23,772

                              = $142,272

Hence, the value of the company is $142,272.

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

A company has an EBIT of $4,520 in perpetuity. The unlevered cost of capital is 15.98%,...
A company has an EBIT of $4,520 in perpetuity. The unlevered cost of capital is 15.98%, and there are 25,750 common shares outstanding. The company is considering issuing $9,910 in new bonds at par to add financial leverage. The proceeds of the debt issue will be used to repurchase equity. The YTM of the new debt is 11.06% and the tax rate is 33%. What is the weighted average cost of capital after the restructuring?
A company has an EBIT of $4,635 in perpetuity. The unlevered cost of capital is 16.22%,...
A company has an EBIT of $4,635 in perpetuity. The unlevered cost of capital is 16.22%, and there are 26,490 common shares outstanding. The company is considering issuing $10,160 in new bonds at par to add financial leverage. The proceeds of the debt issue will be used to repurchase equity. The YTM of the new debt is 11.29% and the tax rate is 34%. What is the cost of the levered equity after the restructuring?
An unlevered firm has a cost of capital of 13.6 percent and earnings before interest and...
An unlevered firm has a cost of capital of 13.6 percent and earnings before interest and taxes of $138,000. A levered firm with the same operations and assets has both a book value and a face value of debt of $520,000 with an annual coupon of 7 percent. The applicable tax rate is 21 percent. What is the value of the levered firm? Multiple Choice $996,421 $907,679 $1,184,929 $910,818 $1,191,506
An unlevered firm has a cost of capital of 13.6 percent and earnings before interest and...
An unlevered firm has a cost of capital of 13.6 percent and earnings before interest and taxes of $138,000. A levered firm with the same operations and assets has both a book value and a face value of debt of $520,000 with an annual coupon of 7 percent. The applicable tax rate is 21 percent. What is the value of the levered firm?
Country Markets has an unlevered cost of capital of 11.45 percent, a tax rate of 35...
Country Markets has an unlevered cost of capital of 11.45 percent, a tax rate of 35 percent, and expected earnings before interest and taxes of $18,700. The company has $11,000 in bonds outstanding that have an 8 percent coupon and pay interest annually. The bonds are selling at par value. What is the value of WACC?
XYZ Co. has an unlevered cost of capital of 20%, a tax rate of 20% percent,...
XYZ Co. has an unlevered cost of capital of 20%, a tax rate of 20% percent, and expected earnings before interest and taxes of $400,000 (in perpetuity). The company has outstanding bonds with a market value of $1 million, and a yield of 6%. What is the cost of equity? A. 15.64% B. 16.42% C. 25.12% D. 38.67% E. none of the above
Johnson Tire Distributors has an unlevered cost of capital of 13 percent, a tax rate of...
Johnson Tire Distributors has an unlevered cost of capital of 13 percent, a tax rate of 35 percent, and expected earnings before interest and taxes of $1,500. The company has $2,700 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?
Johnny Dei inc. has a perpetual expected EBIT of $56,000,000 and is currently unlevered. The current...
Johnny Dei inc. has a perpetual expected EBIT of $56,000,000 and is currently unlevered. The current required return on the firm's equity is 25%. The company has 2 million ordinary shares outstanding. The corporate tax rate is 27%. The firm is planning a recapitalization: it will issue $50,000,000 debt which it plans to keep constant perpetually and use the proceeds to buy back shares. The cost of debt is 7.25%. What is the value of the company before the recapitalization...
Dakota Co. has expected earnings before interest and taxes of $8,100, an unlevered cost of capital...
Dakota Co. has expected earnings before interest and taxes of $8,100, an unlevered cost of capital of 10 percent, and debt with both a book and face value of $14,000. The debt has an 8 coupon. The tax rate is 34 percent. What is the value of the firm?
A firm has expected earnings before interest and taxes of $1,700. Its unlevered cost of capital...
A firm has expected earnings before interest and taxes of $1,700. 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 $2,700. This debt has a 7 percent coupon and pays interest annually. What is the firm's weighted average cost of capital? Still having trouble understanding how to answer WACC
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT