Equal,IncIs Financed with Equal Portions of Debt and Equity

question 40

Multiple Choice

Equal,Inc.is financed with equal portions of debt and equity.The after-tax cost of debt is 6% and the cost of equity is 8%.If Equal expects next year's free cash flow to be $25,000,000 with growth of 3% thereafter,what is the value of Equal,Inc.to the nearest dollar? Equal's marginal tax rate is 35%.

• A) $357,142,857
• B) $625,000,000
• C) $833,333,333
• D) none of the above

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Definitions:

Chemical Composition

The identification and proportion of the elements or compounds that constitute a substance or material.

Diplococci

A type of bacteria that forms pairs and is often associated with infections such as pneumonia.

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A sexually transmitted infection caused by the bacterium Neisseria gonorrhoeae, known for affecting mucous membranes.

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An inflammation of the meninges.