Castle Corp. generated $2 million - 3718

Solution Posted by
UoPExpert

UoPExpert

Rating : (2)F
Solution Detail
Price: $1.30
  • From: ,
  • Posted on: Mon 26 Mar, 2012
  • Request id: None
  • Purchased: 0 time(s)
  • Average Rating: No rating
Request Description

Castle Corp. generated $2 million in operating income from sales of $20 million during the latest fiscal year. The firm’s interest expense was $500,000, and the corporate income tax rate was 40%. Investors require a rate of return of 18%. Using the dependence hypothesis approach to valuation, what is the market value of Castle? 

A. 

$9.6 million

B. 

$8.3 million

C. 

$5.1 million

D. 

$7.2 million

E. 

$6.5 million

 

Solution Description

 Castle Corp. generated $2 million in operating income from sales of $20 million during the latest fiscal year. The firm’s interest expense was $500,000, and the corporate income tax rate was 40%. Investors require a rate of return of 18%. Using the dependence hypothesis approach to valuation, what is the market value of Castle?