Tin Roof's net cash flows for the next three years are projected at $72,000, $78,000, and $84,000, respectively. After that the cash flows are expected to increase by 2.5 percent annually. Recently issued debt carries an interest rate of 7.85%. Tin Roof's marginal tax rate is 21%. The cost of equity is 11.4 percent. a) What is the value of the firm if it is financed with 40 percent debt and 60 percent equity? b) Tin Roof has 20,300 outstanding shares and are currently trading for $29.00 per share. At this price do you believe that Tin Roof shares are over priced, under priced or fairly priced. Please justify your answer.
Tin Roof's net cash flows for the next three years are projected at $72,000, $78,000, and $84,000, respectively. After that the cash flows are expected to increase by 2.5 percent annually. Recently issued debt carries an interest rate of 7.85%. Tin Roof's marginal tax rate is 21%. The cost of equity is 11.4 percent. a) What is the value of the firm if it is financed with 40 percent debt and 60 percent equity? b) Tin Roof has 20,300 outstanding shares and are currently trading for $29.00 per share. At this price do you believe that Tin Roof shares are over priced, under priced or fairly priced. Please justify your answer.
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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Tin Roof's net cash flows for the next three years are projected at $72,000, $78,000, and $84,000, respectively. After that the cash flows are expected to increase by 2.5 percent annually. Recently issued debt carries an interest rate of 7.85%. Tin Roof's marginal tax rate is 21%. The
a) What is the value of the firm if it is financed with 40 percent debt and 60 percent equity?
b) Tin Roof has 20,300 outstanding shares and are currently trading for $29.00 per share. At this price do you believe that Tin Roof shares are over priced, under priced or fairly priced. Please justify your answer.
Please show excel formulas, Thank you
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