Need help finding the answers I got incorrect! Mojito Mint Company has a debt–eq

Question

Need help finding the answers I got incorrect!

Mojito Mint Company has a debt–equity ratio of .30. The required return on the company’s unlevered equity is 14 percent, and the pretax cost of the firm’s debt is 7.1 percent. Sales revenue for the company is expected to remain stable indefinitely at last year’s level of $17,600,000. Variable costs amount to 60 percent of sales. The tax rate is 40 percent, and the company distributes all its earnings as dividends at the end of each year.

If the company were financed entirely by equity, how much would it be worth? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

What is the required return on the firm’s levered equity? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Use the weighted average cost of capital method to calculate the value of the company. (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

What is the value of the company’s equity? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

What is the value of the company’s debt? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Use the flow to equity method to calculate the value of the company’s equity. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Need help finding the answers I got incorrect!

Mojito Mint Company has a debt–equity ratio of .30. The required return on the company’s unlevered equity is 14 percent, and the pretax cost of the firm’s debt is 7.1 percent. Sales revenue for the company is expected to remain stable indefinitely at last year’s level of $17,600,000. Variable costs amount to 60 percent of sales. The tax rate is 40 percent, and the company distributes all its earnings as dividends at the end of each year.

Explanation / Answer

c2. Value of equity = Value of company / (Debt-equity ratio + 1)

= $32,948,517.90 / (3 + 1)

= $8,237,129.48

c3. Value of debt = Value of company - Value of equity

= $32,948,517.90 - $8,237,129.48

= $24,711,388.42

d. Cashflow to equity = [Sales * (1 - variable cost) - Cost of debt] * (1 - Tax rate)

= [$17,600,000 * (1 - 60%) - $24,711,388.42 * 7.1%] * (1 - 40%)

= $3,171,294.85

Value of equity = Cashflow to equity / cost of equity

= $3,171,294.85 / 14%

= $22,652,106.10

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