Purchase Solution

Firm Value - Janetta Corp

Not what you're looking for?

Ask Custom Question

Firm Value
Janetta Corp. has an EBIT rate of $750,000 per year that is expected to continue in perpetuity. The unlevered cost of equity for the company is 15%, and the corporate tax rate is 35%. The company also has a perpetual bond issue outstanding with a market value of $1.5 million.
a. What is the value of the company?
b. The CFO of he company informs the company president that the value of the company is $3.2 million. Is the CFO correct?

Purchase this Solution
Solution Summary

The solution explains how to calculate the value of a firm.

Solution Preview

a. What is the value of the company?

The value of a levered firm = Value unlevered + value of tax shield on debt
Value unlevered = EBIT X (1-tax ...

Purchase this Solution
Free BrainMass Quizzes
Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

View More Free Quizzes
Related BrainMass Solutions

  • Value of operations

    Total value of H corp = Value of operations + non operating assets The non operating assets are marketable securities Total value of H corp = 1,490.10+100 = 1,590.1 Value of equity = Value of firm - value of debt Value of equity = 1,590.1-200 = 1,390.10

  • Acquisition & Merger Analysis

    What are the valuations of OldPro Corp. and FastGro Inc. as standalone firms based on the SVA Model? b. What is the estimated value of the merged firm? c. What is the estimated value created by the merger? d.

  • Acquisition and P/E Ratios

    58628 P/E Ratios Castor Corp. and Pollux Corp. each have 100 million shares and earnings per share of $2. Castor has a P/E ratio of 20, while Pollux has a P/E ratio of 15.

  • Enterprise value of Turnbull Corporation

    The firm has 135 million shares outstanding and a share price of $12.80. A competing firm that is very similar to Turnbull has an enterprise value/EBITDA multiple of 5.40. What is the enterprise value of Turnbull Corp.?

  • Forward rate contract

    The present value for one month at 12% is .9901. A) $ 700 (gain). B) $ 700 (loss). C) $ 300 (gain). D) $ 300 (loss). E) $ 695.05 (gain). Car Corp. (a U.S.

  • After-tax rate of return

    Assuming a 40 percent marginal tax rate, what after-tax rate of return must Higgins Office Corp. earn on its investments if the value of the firm is to remain unchanged?

  • Firm Value of Old School Corporation

    119230 Firm Value of Old School Corporation Old School Corp. expects an EBIT of $9,000 every year forever. Old School currently has no debt,and it's cost of equity is 17 %. The firm can borrow at 10 %.

  • Capital Budgeting Decisions: Equity Corp, Declining Market Inc, Clean Tooth and Flower City Grocery

    The consultant recently submitted the following analysis: Cost of new machine $100,000 Present value of after-tax revenues from operation 90,000 Present value of after-tax operating expenses 20,000 Present value of depreciation expenses

  • Valuation and P/E

    As an alternative measure, you also examine the value of the firm based on the price-earnings (P/E) ratio times earnings per share.

View More Related Solutions