PART 3: Long Questions Question L1 [21 Points] Your company has a cost of debt of...

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PART 3: Long Questions Question L1 [21 Points] Your company has a cost of debt of 3.45% and a return on levered equity of 9.00%. The unlevered value of equity is 23,500,000 Eur and the company's expected perpetual EBITDA is 1,762,500. Assume all assets are depreciated, there is no taxation and no bankruptcy costs. a) What is the debt to equity ratio of the firm? [7 Points] b) In one year the state of the world can be good or bad. The value of the company assets in one year can be 36,000,000 with probability 50% if the state of the world is good. What is the value of the assets in the bad state? [7 Points] c) The company now decides to issue a debt, that will be due in one year, with face value 20,000,000 Eur. Assume that, differently from before, the bankruptcy costs are 3,200,000 and that the debt price is 75% of its face value. If the market risk premium is 5.00% and the expected return on the market portfolio is 7.00%, what is the beta of debt? [7 Points] PART 3: Long Questions Question L1 [21 Points] Your company has a cost of debt of 3.45% and a return on levered equity of 9.00%. The unlevered value of equity is 23,500,000 Eur and the company's expected perpetual EBITDA is 1,762,500. Assume all assets are depreciated, there is no taxation and no bankruptcy costs. a) What is the debt to equity ratio of the firm? [7 Points] b) In one year the state of the world can be good or bad. The value of the company assets in one year can be 36,000,000 with probability 50% if the state of the world is good. What is the value of the assets in the bad state? [7 Points] c) The company now decides to issue a debt, that will be due in one year, with face value 20,000,000 Eur. Assume that, differently from before, the bankruptcy costs are 3,200,000 and that the debt price is 75% of its face value. If the market risk premium is 5.00% and the expected return on the market portfolio is 7.00%, what is the beta of debt? [7 Points]