Question
ABC Corporation expects an EBIT of $24,225 every year forever. The company currently has no debt, and its cost of equity is 12.5 percent. The
ABC Corporation expects an EBIT of $24,225 every year forever. The company currently has no debt, and its cost of equity is 12.5 percent. The corporate tax rate is 21 percent. |
a) | What is the current value of the company? (Round your answer to 2 decimal places.) |
b) | Suppose the company can borrow at 8 percent. What will the value of the firm be if the company takes on debt equal to 25 percent of its unlevered value? (Round your final answer to 2 decimal places.) |
c) | What will the value of the firm be if the company takes on debt equal to 75 percent of its levered value? This problem is independent of part (b), so dont use your answers for (b) to solve this part. (Do not round intermediate calculations and round your final answer to 2 decimal places.) |
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