1.

Janice Pizza is raising their debt to equity ratio to .57 from 0% debt. The required rate of return on their equity is 10.7%. The firm has a projected EBIT of $147,000 and can issue debt at 5.9% per annum.

Given this information, what is the firm's levered value if their tax rate is 39% ?

a. $1,030,289

b. $754,234

c. $897,367

d. $956,697

e. $838,037

2.

Assume Tommy Boy Corp has no debt in their capital structure and has a tax rate of 30%. Their current Beta is 0.90. Management now decides to increase their debt load and will result in a debt/equity ratio of 0.30.

Given this change, what is the new Beta of the firm given this added leverage?

A. 1.34

B. 1.09

C. 1.21

D. 0.65