View the step-by-step solution to:

Bluegrass Mint Company has a debt-equity ratio of . The required return on the company's unlevered equity is 13.7 percentand the pretax cost of the...

Bluegrass Mint Company has a debt-equity ratio of .30. The required return on the company's unlevered equity is 13.7 percent and the pretax cost of the firm's debt is 7.5 percent. Sales revenue for the company is expected to remain stable indefinitely at last year's level of $20,600,000. Variable costs amount to 60 percent of sales. The tax rate is 25 percent and the company distributes all its earnings as dividends at the end of each year.

  

a.If the company were financed entirely by equity, how much would it be worth? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)


b.What is the required return on the firm's levered equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

c-1.Use the weighted average cost of capital method to calculate the value of the company. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)

c-2.What is the value of the company's equity? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)c-3.What is the value of the company's debt? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)

d.Use the flow to equity method to calculate the value of the company's equity. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)

Top Answer

1.     Worth = (sales - variable cost) * (1-tax rate) / cost of equity           = (20,600,000 - 20,600,000 *... View the full answer

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Ask a homework question - tutors are online