Edwards Construction currently has debt outstanding with a market value of $104,000 and a cost of 12 percent. The company has EBIT of $12,480 that is expected to continue in perpetuity. Assume there are no taxes. a-1. What is the value of the company's equity? (Do not round intermediate calculations. Leave no cell blank - be certain to enter "0" wherever required.) a- What is the debt-to-value ratio? (Do not round intermediate calculations and round 2. your answer to the nearest whole number, e.g., 32.) b. What are the equity value and debt-to-value ratio if the company's growth rate is 6 percent? (Do not round intermediate calculations and round your "Debt-to- value" answer to 3 decimal places, e.g., 32.161.) c. What are the equity value and debt-to-value ratio if the company's growth rate is 10 percent? (Do not round intermediate calculations and round your "Debt-to- value" answer to 3 decimal places, e.g., 32.161.)
Edwards Construction currently has debt outstanding with a market value of $104,000 and a cost of 12 percent. The company has EBIT of $12,480 that is expected to continue in perpetuity. Assume there are no taxes. a-1. What is the value of the company's equity? (Do not round intermediate calculations. Leave no cell blank - be certain to enter "0" wherever required.) a- What is the debt-to-value ratio? (Do not round intermediate calculations and round 2. your answer to the nearest whole number, e.g., 32.) b. What are the equity value and debt-to-value ratio if the company's growth rate is 6 percent? (Do not round intermediate calculations and round your "Debt-to- value" answer to 3 decimal places, e.g., 32.161.) c. What are the equity value and debt-to-value ratio if the company's growth rate is 10 percent? (Do not round intermediate calculations and round your "Debt-to- value" answer to 3 decimal places, e.g., 32.161.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Transcribed Image Text:Edwards Construction currently has debt outstanding with a market value of $104,000
and a cost of 12 percent. The company has EBIT of $12,480 that is expected to continue
in perpetuity. Assume there are no taxes.
a-1. What is the value of the company's equity? (Do not round intermediate calculations.
Leave no cell blank - be certain to enter "0" wherever required.)
a- What is the debt-to-value ratio? (Do not round intermediate calculations and round
2. your answer to the nearest whole number, e.g., 32.)
b. What are the equity value and debt-to-value ratio if the company's growth rate is 6
percent? (Do not round intermediate calculations and round your "Debt-to-
value" answer to 3 decimal places, e.g., 32.161.)
c. What are the equity value and debt-to-value ratio if the company's growth rate is 10
percent? (Do not round intermediate calculations and round your "Debt-to-
value" answer to 3 decimal places, e.g., 32.161.)
Answer is complete but not entirely correct.
a-1. Value of equity
a-2. Debt-to-value
ratio
b.Equity value
b. Debt-to-value
c. Equity value
c. Debt-to-value
$
0
1
12,480
0.893
62,400
0.625
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