ABC has relatively constant returns from its operations. Average annual profit figures are as follows: Sales 3,000,000.00 Less: Cost of Sales 1,650,000.00 Gross Profit 1,350,000.00 Less: Operating Expenses 600,000.00 Operating Income 750,000.00 Non-cash expenses are 30% of the cost of sales plus 40% of operating expenses. ABC has long-term debt amounting to 3,000,000 with a coupon rate of 8%. This debt is currently being sold at face. The weighted average cost of capital is 15%. ABC is taxed at 35%. Based on this information, how much is the value of the equity of ABC?
ABC has relatively constant returns from its operations. Average annual profit figures are as follows:
Sales 3,000,000.00
Less: Cost of Sales 1,650,000.00
Gross Profit 1,350,000.00
Less: Operating Expenses 600,000.00
Operating Income 750,000.00
Non-cash expenses are 30% of the cost of sales plus 40% of operating expenses. ABC has long-term debt amounting to 3,000,000 with a coupon rate of 8%. This debt is currently being sold at face. The weighted average cost of capital is 15%. ABC is taxed at 35%. Based on this information, how much is the value of the equity of ABC?
Step by step
Solved in 3 steps with 2 images
