Kitto Electronics Data Kitto Electronics Expects an EBIT of $200,000 for Year-1.EBIT Is

question 32

Multiple Choice

Kitto Electronics Data
Kitto Electronics expects an EBIT of $200,000 for Year-1.EBIT is expected to grow at 6% thereafter.The tax rate is 25%.In order to support growth, Kitto must reinvest 20% of its EBIT in net operating assets.Kitto has $300,000 in 8% debt outstanding, and a similar company with no debt has a cost of equity of 11%.
-Refer to data for Kitto Electronics.Using the compressed adjusted present value model, what is Kitto's value of equity?

• A) $2,020,000
• B) $2,070,500
• C) $2,122,263
• D) $2,175,319
• E) $2,229,702

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Definitions:

Fixed Order Quantity

A specific, constant quantity of items ordered each time an order is placed, typically used in inventory management to replenish stock.

EOQ

Economic Order Quantity is a formula used in inventory management to determine the optimal order size that minimizes the total holding costs and ordering costs.

Time Fences

A means for allowing a segment of the master schedule to be designated as “not to be rescheduled”.

MPS

Master Production Schedule, a plan for individual commodities to be produced in each time period such as production, staffing, inventory, etc.