Capital Structure and Growth Edwards Construction currently has debt outstanding with a market value of $85,000 and

Question:

Capital Structure and Growth Edwards Construction currently has debt outstanding with a market value of $85,000 and a cost of 9 percent. The company has EBIT of

$7,650 that is expected to continue in perpetuity. Assume there are no taxes.

a. What is the value of the company’s equity? What is the debt-to-value ratio?

b. What are the equity value and debt-to-value ratio if the company’s growth rate is 3 percent?

c. What are the equity value and debt-to-value ratio if the company’s growth rate is 7 percent?

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