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 WACC method is closest to:
A)$137 million.
B)$180 million.
C)$230 million.
D)$240 million.

Question

Quizplus · Accepted Answer

The correct answer is A. The WACC is calculated as (6% * 80 million) / (80 million + 160 million) + (12% * 160 million) / (80 million + 160 million) = 8.4%. The value of Galt's equity is then calculated as $24 million / 0.084 = $285.71 million. Subtracting the value of the debt ($80 million) gives an equity value of $205.71 million.

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