Milano Pizza Club owns three identical restaurants popular for their specialty pizzas. Each restaurant has a debt-to-equity ratio of 40 percent and makes interest payments of $51,000 at the end of each year. The cost of the firm's levered equity is 14 percent. Each store estimates that annual sales will be $1.37 million, annual cost of goods sold will be $586,500, and annual general and administrative costs will be $391,000. These cash flows are expected to remain the same forever. The corporate tax rate is 40 percent. a. Use the FTE approach to determine the value of the company's equity. (Round the answer to 2 decimal places. Omit $ sign in your response.) Equity value b. What is the total value of the company? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Total value $
Milano Pizza Club owns three identical restaurants popular for their specialty pizzas. Each restaurant has a debt-to-equity ratio of 40 percent and makes interest payments of $51,000 at the end of each year. The cost of the firm's levered equity is 14 percent. Each store estimates that annual sales will be $1.37 million, annual cost of goods sold will be $586,500, and annual general and administrative costs will be $391,000. These cash flows are expected to remain the same forever. The corporate tax rate is 40 percent. a. Use the FTE approach to determine the value of the company's equity. (Round the answer to 2 decimal places. Omit $ sign in your response.) Equity value b. What is the total value of the company? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Total value $
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Milano Pizza Club owns three identical restaurants popular for their specialty pizzas. Each restaurant has a debt-to-equity
ratio of 40 percent and makes interest payments of $51,000 at the end of each year. The cost of the firm's levered equity is
14 percent. Each store estimates that annual sales will be $1.37 million, annual cost of goods sold will be $586,500, and
annual general and administrative costs will be $391,000. These cash flows are expected to remain the same forever. The
corporate tax rate is 40 percent.
a. Use the FTE approach to determine the value of the company's equity. (Round the answer to 2 decimal places. Omit $
sign in your response.)
Equity value
b. What is the total value of the company? (Do not round intermediate calculations. Round the final answer to 2 decimal
places. Omit $ sign in your response.)
Total value
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