Use the following information to answer the question(s)below.
Galt Industries is expected to generate free cash flows of $24 million per year.Galt has permanent debt of $80 million,a corporate tax rate of 21%,and an unlevered cost of capital of 12% and its cost of debt capital is 6%.
-The value of Galt's equity using the APV method is closest to:

Question

Quizplus · Accepted Answer

The APV of Galt's equity is $137 million. This is calculated as follows:Unlevered value of the firm = FCF / WACC= $24 million / 0.12= $200 millionValue of debt = $80 millionValue of equity = Unlevered value of the firm - Value of debt= $200 million - $80 million= $120 millionTax shield on debt = $80 million * 0.21 * 0.06= $10.08 millionValue of equity with tax shield = Value of equity + Tax shield on debt= $120 million + $10.08 million= $137 million

Use the Following Information to Answer the Question(s)below