Suppose that you are running a local coffee shop named JudyLee Coffee Corp and has an outstanding

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Suppose that you are running a local coffee shop named JudyLee Coffee Corp and has an outstanding debt of $1,000,000 at 8%.Your company has EBIT of $80,000 per period and it is expected to continue in perpetuity.Assume no taxes.

a.Compute the cash flow for equity holders for each period. What is the company's debt to value ratio?

b.Now assume that the EBIT and Debt, both, grow at 5% per period.Compute the cash flow for equity holders for each period.What is the company's debt to value ratio?

c.So can you find any relationship between the equity value and the growth rate?Explain.

Posted Date: May 18, 2024 04:00 AM

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