Zahn Enterprises pays $3 million annually to its bondholders and $7.5 million annual to its stockholders. The required rates of return are 9 percent and 15 percent, respectively, by the bondholders and stockholders. What is the value of Zahn Enterprises?
A)$1.40 million
B)$10.50 million
C)$16.66 million
D)$83.33 million

Question

Quizplus · Accepted Answer

The value of Zahn Enterprises can be calculated by dividing the annual payments to bondholders and stockholders by their respective required rates of return. For bondholders: $3 million / 9% = $33.33 million. For stockholders: $7.5 million / 15% = $50 million. Adding these values together gives $33.33 million + $50 million = $83.33 million.

Zahn Enterprises Pays $3 Million Annually to Its Bondholders and $7.5