What is the market value of Barings, a firm with total assets of $100 million and $30 million in perpetual debt in its capital structure? Barings' cost of equity is 15%, and its cost of debt is 10%. Expected perpetual net operating income (EBIT) will be $17 million, and the marginal tax rate is 40%.
A) $86.0 million
B) $104.0 million
C) $98.0 million
D) $92.7 million

Question

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The market value of Barings is $86.0 million. This is calculated as follows:Market value of assets = $100 millionMarket value of debt = $30 millionMarket value of equity = $70 millionCost of equity = 15%Cost of debt = 10%Expected perpetual net operating income (EBIT) = $17 millionMarginal tax rate = 40%Weighted average cost of capital (WACC) = (Cost of equity * Equity weight) + (Cost of debt * Debt weight)WACC = (0.15 * 0.7) + (0.10 * 0.3) = 0.121Market value of equity = Expected perpetual net operating income (EBIT) / WACCMarket value of equity = $17 million / 0.121 = $140.5 millionMarket value of Barings = Market value of assets + Market value of debtMarket value of Barings = $100 million + $30 million = $130 million

What Is the Market Value of Barings, a Firm with Total