Eddiersquos electronics limited has an ebit of 450000 that, Ask an Expert

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Eddie’s Electronics Limited has an EBIT of $450,000 that it expects it will earn forever, and it pays all of it’s earnings as dividends to shareholders (ie., no growth). The firm has a corporate tax rate of 40% and has an un-levered beta of .90. The firm has 92,656 common shares issued and outstanding. In the market, you observe that Government T-bills are being sold to yield 4% and the S&P/TSX Composite Index is expected to yield 10%. Assuming a world of taxes and a cost for the risk of default,

a) Calculate the value of the firm.

b) Calculate the WACC for the firm.

c) What is the value of a share in the company and what is the EPS?

d) What is the value of the firm if the firm issues $600,000 of bonds at a coupon rate of 7.5%? The beta for the equity of the leveraged firm is 1.02.

e) What is the WACC for the firm with its new capital structure?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91771837

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