The market value of a firm with ($500,000) of debt is ($1,700,000.) EBIT is expected to be
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The market value of a firm with \($500,000\) of debt is \($1,700,000.\) EBIT is expected to be a perpetuity. The pretax interest rate on debt is 10 percent. The company is in the 34-percent tax bracket. If the company was 100-percent equity financed, the equityholders would require a 20-percent return.
a. What would the value of the firm be if it was financed entirely with equity?
b. What is the net income to the stockholders of this levered firm?
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