Question: Question 6 (14 marks) You are told to value a private business with the following information: EBIT: $350,000, which is expected to grow at 2%

Question 6 (14 marks) You are told to value a private

Question 6 (14 marks) You are told to value a private business with the following information: EBIT: $350,000, which is expected to grow at 2% per year indefinitely. 50% of EBIT is attributed to the owner who will not stay on if the business is sold. - D/E ratio: 0.5 - Pre-tax cost of debt: 10% Equity beta: 1.5 Risk-free rate: 4% - Market risk premium: 6% Tax rate: 30% Net capital expenditure: 30,000 and is expected to grow at 2% per year indefinitely. a) Estimate the value of the firm, assuming that the business will be sold to a diversified investor. (8 marks) b) How would your answer be different if the owner offered to stay on for one year, assuming that the owner will receive an annual salary of 70,000. (6 marks)

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

You are told to value a private business with the following information: - EBIT: $350,000, which is expected to grow at 2% per year indefinitely. - 50% of EBIT is attributed to the owner who will not...

answer a + b You are told to value a private business with the following information: EBIT: $350,000, which is expected to grow at 2% per year indefinitely. 50% of EBIT is attributed to the owner who...

You are told to value a private business with the following information: EBIT: $350,000, which is expected to grow at 2% per year indefinitely. 50% of EBIT is attributed to the owner who will not...

You are told to value a private business with the following information: EBIT: $350,000, it will grow at 2% forever. - 50% of EBIT is attributed to the owner who will not stay on if the business is...

IfyouhaveplayedaSimulationcalledProBankerIneedhelpansweringthesequestionsassoonaspossible from the pro bankerassignment attachment..please use spreadsheet and players manual for reference. Need...

Quantitative Analysis Estimate each propertys current value by calculating the present discounted value of expected future cash flows. The forward-looking cash flows have been provided for you in the...

8. What do you think is a relevant range of values for Ferrari's Discount Cash Flow (DCF) valuation? What conclusions can you draw from the comparative analysis? Are these in any significant way...

Your submission should cover the following: (1) Briefly, summarize the key facts of the case and identify the problem. State and explain the decision that needs to be made. An excellent report will...

Hello again, hope all is well. I am currently working on a homework assignment and only have 2questions left. I completed all thecalculations step by step for question 1, but cannot seem to find my...

Consider the following statement: "When drawing ERD, you should avoid introducing more elements into your design than necessary" That above statement describes which principle? A. Faithfulness...

We contrasted forward and backward state-space search planners with partial-order planners, saying that the latter is a plan-space searcher. Explain how forward and backward state-space search can...

1259. A particle travels along a curve defined by the equation s = (t3 - 3t2 + 2t) m, where t is in seconds. Draw the s t, v t, and a t graphs for the particle for 0 t 3 s.

PLEASE SHOW ALL WORK SO I CAN LEARN AND FOLLOW ALONG. THANK YOU SO MUCH! Campbell Company has a "maintaining equipment" activity and wants to develop a flexible budget formula for the activity. The...