Company E has a debt-equi

Company E has a debt-equi

Company E has a debt-equity ratio of 0.56. The required return on the company?s levered equity is 12 percent, and the pre-tax cost of the firm?s debt is 4 percent. Sales revenue is expected to remain at $22.2M in perpetuity. Variable costs amount to 60 percent of sales. The tax rate is 40 percent, and the company distributes all its earnings as dividends. (a) Use the weighted average cost of capital method to calculate the value of the company. (b) Use the flow to equity (FTE) method to calculate the value of the company?s equity. (c) Briefly describe the difference, if any, in your valuations.

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