Use the following information to estimate the intrinsic value of VIMs common stock using the residual income model VIM had total assets of $ 3,000,000, financed with twice as much debt capital as equity capital VIMs pretax cost of debt is 6 percent and cost of equity capital is 10 percent VIM had E...

According to the residual income model the intrinsic value of a share of common stock equals book va ...

Use the following information to estimate the intrinsic value of VIMs common stock using the residual income

Question:

Use the following information to estimate the intrinsic value of VIM’s common stock using the residual income model:

VIM had total assets of $ 3,000,000, financed with twice as much debt capital as equity capital.
VIM’s pretax cost of debt is 6 percent and cost of equity capital is 10 percent.
VIM had EBIT of $ 300,000 and was taxed at a rate of 40 percent. EBIT is expected to continue at $ 300,000 indefinitely.
VIM’s book value per share is $ 20.

VIM has 50,000 shares of common stock outstanding.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Cost Of Debt
The cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking... Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...

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