Milano Pizza Club owns three identical restaurants popular for their specialty pizzas. Each restaurant has a debt-to-equity ratio of 40 percent and makes interest payments of $43,000 at the end of each year. The cost of the firm's levered equity is 16 percent. Each store estimates that annual sales will be $1.29 million, annual cost of goods sold will be $550,500, and annual general and administrative costs will be $367,000. These cash flows are expected to remain the same forever. The corporate tax rate is 40 percent. a. Use the FTE approach to determine the value of the company's equity. (Round the answer to 2 decimal places. Omit $ sign in your response.) Equity value $4,513,125.00 ✪ b. What is the total value of the company? (Do not round Intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) $ 6,318,375.00 Total value

Milano Pizza Club owns three identical restaurants popular for their specialty pizzas. Each restaurant has a debt-to-equity ratio of 40 percent and makes interest payments of $43,000 at the end of each year. The cost of the firm's levered equity is 16 percent. Each store estimates that annual sales will be $1.29 million, annual cost of goods sold will be $550,500, and annual general and administrative costs will be $367,000. These cash flows are expected to remain the same forever. The corporate tax rate is 40 percent. a. Use the FTE approach to determine the value of the company's equity. (Round the answer to 2 decimal places. Omit $ sign in your response.) Equity value $4,513,125.00 ✪ b. What is the total value of the company? (Do not round Intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) $ 6,318,375.00 Total value

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter22: Providing And Obtaining Credit

Section: Chapter Questions

Problem 9MC: Now assume that it is several years later. The brothers are concerned about the firm’s current...

See similar textbooks

Similar questions

Milano Pizza Club owns a chain of three identical restaurants for their Milan style pizza. Each store has $270,000 in debt outstanding and a debt-to-equity ratio of 30 percent. The prevailing market interest rate is 9.5 percent. An equivalent all-equity financed store would have a discount rate of 15 percent. For each store, the estimated annual sales are $1,000,000, cash costs to generate these sales are $400,000 annually, depreciation charges are $300,000 annually, and capital expenditures are $300,000 annually. Each of these values is assumed to continue in perpetuity with no growth. The corporate tax rate is 40 percent. Using the FTE approach, what is the value of Milano's Pizza Club?
Give typing answer with explanation and conclusion
7. Jayden and Ziad own four identical pizza shops in downtown Newark. Each shop has a debt-to- equity ratio of 35 percent and makes interest payments of $52,000 at the end of each year. The cost of the firm's levered equity is 16 percent. Each store estimates that annual sales will be $1,450 million. The annual cost of goods sold will be $780,000. The owners estimated annual SG&A costs will be $450,000. Note also that these cash flows are expected to remain the same forever. Estimated corporate tax is 21 percent. A) Use the flow to equity approach to determine the value of the company's equity. B) Determine the total value of J&Z Pizza shops to date.
Libscomb Technologies' annual sales are $6,750,624 and all sales are made on credit, it purchases $3,062,806 of materials each year (and this is its cost of goods sold). Libscomb also has $571,915 of inventory, $1,475,000 of accounts receivable, and $1,400,000 of accounts payable. Assume a 365 day year. What is Libscomb’s Receivables Period (in days)?
Libscomb Technologies' annual sales are $6,974,991 and all sales are made on credit, it purchases $3,511,535 of materials each year (and this is its cost of goods sold). Libscomb also has $550,869 of inventory, $522,928 of accounts receivable, and $477,584 of accounts payable. Assume a 365 day year. What is Libscomb’s Inventory Turnover?
Libscomb Technologies' annual sales are $5,790,872 and all sales are made on credit, it purchases $3,221,342 of materials each year (and this is its cost of goods sold). Libscomb also has $539,653 of inventory, $498,477 of accounts receivable, and $416,602 of accounts payable. Assume a 365 day year. What is Libscomb’s Inventory Period (in days)?
The S&H construction company expects to have total sales next year totaling $14,500,00 In addition, the firm pays taxes at 35 percent and will owe $318,000 in interest expenses. Based on last year’s operations the firm’s management predicts that its cost of goods sold will be 58 percent of sales and operating expenses will total 32 percent. What is your estimate of the firm’s net income after taxes for the coming year ? Complete the pro-forma income statement below Round to the nearest dollar Pro-forma income statement Sales Cost of goods sold Gross profit Operating expenses Net operating expenses Interested expenses Earnings before taxes Taxes Net income
Compost Wholesalers presently uses a public warehouse agreement to finance most of its inventory. The average amount of inventory is $4,000,000, the bank will loan at 5.5 % per annum for the 6-week loan. The loan amount will be against 70 percent of the value of the inventory, and the public warehouse fee is $2,500 per week. Total transportation cost for the loan period is 1.5 percent of the average value of the inventory [that is, (0.015)($4,000,000)]. Find period rate Find m Find the annual percentage rate (APR) Find the effective annual cost (EAR)
Lowe and Price Co has annual credit sales of $12,000,000, and three months are allowed for payment. The company decides to offer a 2% discount for payments made within ten days of the invoice being sent, and to reduce the maximum time allowed for payment to two months. It is estimated that 50% of customers will take the discount. The company requires a 20% return on investments. Assume that the volume of sales will be unaffected by the discount. What is the reduction in accounts receivable? What is the opportunity income from the reduction in accounts receivable? What is the discount allowed each year? What is the net benefit of new discount policy each year?
Hebner Housing Corporation has forecast the following numbers for this upcoming year: Sales = $1,000,000. Cost of goods sold = 600,000. Interest expense = 100,000. Net income = 180,000.The company is in the 40 percent tax bracket. Its cost of goods sold always represents 60 percent of its sales. That is, if the company’s sales were to increase to $1.5 million, its cost of goods sold would increase to $900,000. The company’s CEO is unhappy with the forecast and wants the firm to achieve a net income equal to $240,000. In order to achieve this level of net income, what level of sales will the company have to achieve? Assume that Hebner’s interest expense remains constant.
Camp Manufacturing turns over its inventory eight times each year, has an average payment period of 35 days, and has an average collection period of 60 days. The firm’s annual sales are $3.5 million. Assume there is no difference in the investment per dollar of sales in inventory, receivables, and payables and that there is a 365-day year. If the firm pays 14% for these resources, by how much would it increase its annual profits by favorably changing its current cash conversion cycle by 20 days?
It is December 31. Last year, Galaxy Corporation had sales of $80,000,000, and it forecasts that next year's sales will be $86,400,000. Its fixed costs have been-and are expected to continue to be-$44,000,000, and its variable cost ratio is 10.00 %. Galaxy's capital structure consists of a $15 million bank loan, on which it pays an interest rate of 12%, and 5,000,000 shares of outstanding common equity. The company's profits are taxed at a marginal rate of 35%. The following are the two principal equations that can be used to calculate a firm's DFL value: DFL (at EBIT = $X) = Given this information, complete the following sentences: Percentage Change in EPS Percentage Change in EBIT Consider the following statement about DFL, and indicate whether or not it is correct. 0 0 DFL (at EBITSX) = • The company's percentage change in EBIT is . The percentage change in Galaxy's earnings per share (EPS) is • The degree of financial leverage (DFL) at $86,400,000 is. (Hint: Use the changes in EPS…