n 1(of7) Milano Pizza Club owns three identical restaurants popular for their sp

Question

n 1(of7) Milano Pizza Club owns three identical restaurants popular for their specialty pizzas. Each restaurant has a debt-equity ratio of 35 percent and makes interest payments of $54,000 at the end of each year. The cost of the firm's levered equity is 18 percent Each store estimates that annual sales will be $1.56 million annual cost of goods sold will be $800,000; and annual general and administrative costs will be $535,000 These cash flows are expected to remain the same forever. The corporate tax rate is 35 percent. a. Use the flow to equity approach to determine the value of the company's equity (Enter your answer in dollars, not millions of dollars, e.g, 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g. 32.) Value of the company's e sl b. What is the total value of the company? (Enter your answer in dollars, not miltions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g-32.) eBook & Resources

Explanation / Answer

Sales 1560000 COGS 800000 G & A costs 535000 Interest 54000 EBT 171000 Taxes 59850 NI 111150 value of the company's equity = 111150/.18 617500 What is the total value of the company? Debt equity Ratio =.35 Debt/Equity=.35 Debt/617500=.35 Debt =617500*.35 Debt=216125 So, the value of the company is: V=D+Equity =617500+216125 =833625

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