5B Coffee is a small, owner-operated coffee shop in Brookline, Massachusetts. At the end of the year, EBITDA excluding rent is expected to come in at $275,000. The company rents the space in which the store is set up. It pays $150,000 per year for rent. It owns the entire coffee-making equipment (the espresso machine and the coffee roaster). The book value of these assets is $450,000. The remaining assets have a book value of $50,000. The firm takes an annual depreciation charge of $60,000 for the espresso machine and the coffee roaster and no charge for the remaining assets. Its capital expenditures come in at $62,000 per year. The cost of equity stands at 16%. The firm’s debt is $300,000 on which it pays 8% interest, the current market rate for a company like 5B Coffee. Assume a tax rate of 25%. i. Find the weighted average cost of capital for 5B Coffee. ii. Assuming a steady-state growth rate of 3% for the free cash flow to the firm, value the equity. PLEASE DO NOT GIVE SOLUTION IN IMAGE FORMAT
5B Coffee is a small, owner-operated coffee shop in Brookline, Massachusetts. At the end of the year, EBITDA excluding rent is expected to come in at $275,000.
The company rents the space in which the store is set up. It pays $150,000 per year for rent. It owns the entire coffee-making equipment (the espresso machine and the coffee roaster). The book value of these assets is $450,000.
The remaining assets have a book value of $50,000. The firm takes an annual
The
i. Find the weighted average cost of capital for 5B Coffee.
ii. Assuming a steady-state growth rate of 3% for the
PLEASE DO NOT GIVE SOLUTION IN IMAGE FORMAT
Trending now
This is a popular solution!
Step by step
Solved in 6 steps
