Answer:
Value of the company = $124,019.61
Explanation:
The value of then firm is the present value of its expected future cash inflow discounted at its required rate of return.
In this case, the earnings available to ordinary shareholders becomes the annual cash inflow while the appropriate discount rate is the cost of equity.
The absence of debt in the company's capital structure implies that the cost of equity would be the appropriate discount rate.
And the value of the company would be determined as follows
Value of the company = Earnings after tax/Cost of equity
Earnings after tax = EBIT × (1-Tax rate)= 25,300×(1-0.25)=18,975
Cost of equity = 15.3%
Value of the company = 18975 /0.153= 124,019.6078
Value of the company = $124,019.61
