Problem:
Milano pizza club owns three identical restaurants popular for their specialty pizzas. Each restaurant has a debt - equity ratio of 40 percent and makes interest payments of $41,000 at the end of each year. The coast of the firm's levered equity is 19 percent. Each store estimated the annual sales will be $1.3 million: annual cost of goods sold will be $670,000: and annual general and administrative cost will be $405,000. These cash flows are expected to remain the same forever. The corporate tax rate is 40 percent.
Required:
Question 1: Use the flow to equity approach to determine the value of the company's equity.
Question 2: What is the total value of the company?
Note: Please show how you came up with the solution.