Edwards Construction currently has debt outstanding with a market value of $102,
ID: 2750550 • Letter: E
Question
Edwards Construction currently has debt outstanding with a market value of $102,000 and a cost of 8 percent. The company has EBIT of $8,160 that is expected to continue in perpetuity. Assume there are no taxes.
What is the value of the company's equity? (Do not round intermediate calculations. Leave no cell blank - be certain to enter "0" wherever required.)
What are the equity value and debt-to-value ratio if the company's growth rate is 3 percent? (Do not round intermediate calculations and round your "Debt-to-value" answer to 3 decimal places. (e.g., 32.161))
What are the equity value and debt-to-value ratio if the company's growth rate is 7 percent? (Do not round intermediate calculations and round your "Debt-to-value" answer to 3 decimal places. (e.g., 32.161))
Edwards Construction currently has debt outstanding with a market value of $102,000 and a cost of 8 percent. The company has EBIT of $8,160 that is expected to continue in perpetuity. Assume there are no taxes.
Explanation / Answer
(A). Equity Value:
= 1,02,000 * 8
= 8,160
= $ 93,8400 + $ 8,160
Equity Value = 1,02,000
(B). Equity Value:
=1,02,000 * 3 / 100
=3,060
= 1,02,000 * 8 / 100
= 8,160
= 1,02,000 - 8,160
= $ 93,8400 + 8,160
= 1,02,000 + 3,060
= 1,05,060
(C). Equity Value:
= 1,02,000 * 7 / 100
= 7,140
= 1,02,000 * 8 / 100
= 8,160
= 1,02,000 - 8,160
= $ 93,8400 + 8,160
Total Eqyity = 1,02,000 + 7,140
= 1,09,140
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