What would be the total market value


A consultant has collected the following information regarding Young Publishing:

Total assets $3,000 million Tax rate 40%
Operating income (EBIT) $   800 million Debt ratio 0%
Interest expense $       0 million WACC 10%
Net income $   480 million M/B ratio 1.00´
Share price $32.00 EPS = DPS $3.20




The company has no growth opportunities (g = 0), so the company pays out all of its earnings as dividends (EPS = DPS). The consultant believes that if the company moves to a capital structure financed with 20% debt and 80% equity (based on market values) that the cost of equity will increase to 11% and that the pre-tax cost of debt will be 10%. If the company makes this change, what would be the total market value (in millions) of the firm?

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Finance Basics: What would be the total market value
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