a) What is the company’s unlevered value?  b) Assuming that there are 1,000,000 shares outstanding what is the share price?

Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter21: Supply Chains And Working Capital Management
Section: Chapter Questions
Problem 10P: The D.J. Masson Corporation needs to raise $500,000 for 1 year to supply working capital to a new...
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Your Company has a perpetual EBITDA equal to USD 2,500,000 a year. Given your planned capex activity, you expect to depreciate your assets by USD 1,400,000 per year perpetually. The company’s debt-to-equity ratio is equal to 1.71, your debt is equal USD 27,000,000 and you expect the company to keep it at this amount perpetually. The pre-tax wacc of the company is equal to 7.98% and its debt has an expected return equal to 3.45%. Assume that the depreciation tax shield is as risky as the company’s debt and that the corporate tax rate is 40%.

a) What is the company’s unlevered value? 

b) Assuming that there are 1,000,000 shares outstanding what is the share price? 

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