Orange Inc, a cell-phone manufacturer, is an all equity firm. At the end of the current year, the CFO expects EBIT to be $100 and the same earnings are expected annually in perpetuity
The company is not growing so CAPEX and investments in net working capital are zero. The cost of equity for Orange is 10%. Orange's prime competitor is Verge Inc, manufacturer of the Blueberry smartphone. Verge is identical to Orange Inc in every respect except that Verge has $130.44 of long term debt outstanding. What is the value of Verge Inc? The corporate tax rate is 40%.
A) $500
B) $600
C) $630
D) $652
E) $1,000
D
You might also like to view...
Which of the following is not one of the main four dimensions of knowledge described in the chapter?
A) Knowledge is a firm asset. B) Knowledge has different forms. C) Knowledge has a location. D) Knowledge is situational. E) Knowledge is timeless.
Money serves as a status symbol in which of the following examples?
A. The CEO has a salary of over $3 million. B. The clerk is paid minimum wage plus tips. C. The owner of the business keeps profits but has no salary. D. The manufacturing worker is paid for each item he produces.