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Suppose Pizza Club, a local pizza restaurant, makes interest payments of $34,000 at the end of each year. The cost of firm’s (levered) equity is 18 percent. The annual sales will be around $1.4 million, annual cost of goods sold will be $530,000, and annual general and administrative costs will be $340,000. The corporate tax rate is 40 percent. Assuming these cash flows being expected to remain the same forever, and with the FTE approach:

a. Determine the total value of the company when the debt to equity ratio of 40 percent.

b. Determine the total value of the company when the debt to equity ratio of 60 percent.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92420041

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