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anyanavicka [17]
2 years ago
5

Bassett Fruit Farm expects its EBIT to be $373,000 a year forever. Currently, the firm has no debt. The cost of equity is 13.2 p

ercent and the tax rate is 35 percent. The company is in the process of issuing $2.8 million worth of bonds at par that carry an annual coupon of 6.6 percent. What is the unlevered value of the firm
Business
1 answer:
julia-pushkina [17]2 years ago
6 0

Answer:

The correct answer is $1,836,742.42.

Explanation:

According to the scenario, the given data are as follows:

EBIT = $373,000

Cost of equity = 13.2%

Tax rate = 35%

So, we can calculate the unlevered value of the firm by using following formula:

Unlevered value of the firm = EBIT × (1 - TAX RATE) ÷ COST OF EQUITY

By putting the value, we get

Unlevered value of the firm = $373,000 × ( 1 - 35%) ÷ 13.2%

= $373,000 × 0.65 ÷ 0.132

= $242,450 ÷ 0.132

= $1,836,742.42

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The percent variance is -20%.

Since the actual income is less than the budgeted income, the variance is unfavorable (U).

We calculate Dollar Variance as : Actual Amount - Budgeted Income

Dollar Variance = 400 - 500 = 100

Next, we calculate percent variance as :

Percent variance = \frac{Dollar Variance}{Budgeted Income} *100

Plugging the values in we get,

Percent Variance = \frac{-100}{500} *100

Percent Variance = -20%



6 0
2 years ago
Chiptech, Inc., is an established computer chip firm with several profitable existing products as well as some promising new pro
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Answer:

$11

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As of December 31, the Stanford company has the following information. Use this information to answer questions 1 to 3. Cash $5,
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Answer:

1.2

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