(SOLVED) At Green Construction earnings before interest and taxes EBIT for


Question Description:

$19

At Green Construction, earnings before interest and taxes (EBIT) for the year just ended were $70 million and are not expected to grow. The company pays $ 10 million in interest each year on its perpetual bonds. The expected rate of return on its bonds is 5% and on its stocks is 11%. Last year, interest rates were higher and the bond’s expected rate of return was 6%. Green’s corporate tax rate is 30%. Green’s dividend payout ratio is 100%. Green has 15 million shares outstanding and 150,000 bonds with $1,000 par value. Calculate Green’s current share price and its current bond price.

Answer

$19