Homework SourseLA Clothing has expected earnings before interest and taxes
L.A. Clothing has expected earnings before interest and taxes of $2,300, an unlevered cost of capital of 12 percent and a tax rate of 33 percent. The company also has $3000 of debt that carries a 7 percent coupon. The debt is selling at par value. What is the value of this firm?
Solution
SOLUTION
ValueU = {$2,300 * (1- 0.33)} / 12%
= $1,541 / 12% = $12,842
ValueF = $12,842 + [33% * $3,000]
= $12,842 + $990
= $13,832
