1. 17.

Firm value [LO 16.2] Change Company expects an EBIT of $31 200 every year forever. The company currently has no debt, and its cost of equity is 11 per cent. The company tax rate is 30 per cent.

1. What is the current value of the company?

2. Suppose the company can borrow at 6 per cent. What will the value of the firm be if the company takes on debt equal to 50 per cent of its unlevered value? What if it takes on debt equal to 100 per cent of its unlevered value?

3. What will the value of the firm be if the company takes on debt equal to 50 per cent of its levered value? What if the company takes on debt equal to 100 per cent of its levered value?