Pompeii Pizza Club owns three identical restaurants popular for their specialty pizzas. Each restaurant has a...

70.2K

Verified Solution

Question

Finance

Pompeii Pizza Club owns three identical restaurants popular fortheir specialty pizzas. Each restaurant has a debt-equity ratio of40 percent and makes interest payments of $45,000 at the end ofeach year. The cost of the firm’s levered equity is 18 percent.Each store estimates that annual sales will be $1.32 million;annual cost of goods sold will be $760,000; and annual general andadministrative costs will be $420,000. These cash flows areexpected to remain the same forever. The corporate tax rate is 23percent.
a. Use the flow to equity approach to determine the value of thecompany’s equity. (Do not round intermediate calculations and enteryour answer in dollars, not millions of dollars, rounded to 2decimal places, e.g., 1,234,567.89)
b. What is the total value of the company?

Answer & Explanation Solved by verified expert

4.4 Ratings (950 Votes)

See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Pompeii Pizza Club owns three identical restaurants popular fortheir specialty pizzas. Each restaurant has a debt-equity ratio of40 percent and makes interest payments of $45,000 at the end ofeach year. The cost of the firm’s levered equity is 18 percent.Each store estimates that annual sales will be $1.32 million;annual cost of goods sold will be $760,000; and annual general andadministrative costs will be $420,000. These cash flows areexpected to remain the same forever. The corporate tax rate is 23percent.a. Use the flow to equity approach to determine the value of thecompany’s equity. (Do not round intermediate calculations and enteryour answer in dollars, not millions of dollars, rounded to 2decimal places, e.g., 1,234,567.89)b. What is the total value of the company?