Equal,IncIs Financed with Equal Portions of Debt and Equity

question 24

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:

Economic Development

The process by which a nation improves the economic, political, and social well-being of its people.

Low Income

Indicates earning levels that are significantly lower than the average or median income in a given region or society.

Labor Productivity

A measure of economic performance that calculates the output per unit of labor input, such as output per hour worked.

Human Capital

The collective skills, knowledge, and experience possessed by an individual or population, viewed in terms of their value or cost to an organization or country.