Question
Air Taxi, Inc. and Wing Air, Inc. are identical in every way, except that Wing Air is a more levered firm. Both companies expect to
Air Taxi, Inc. and Wing Air, Inc. are identical in every way, except that Wing Air is a more levered firm. Both companies expect to remain in business for one more year. Here are the economist projections for the next year:
Probability of expansion 75%
Probability of recession 25%
Expansion EBIT $3,700,000
Recession EBIT $2,100,000
Air Taxidebt payment $850,000
Wing Airdebt payment $1,300,000
Annual discount rate 12%
What is the value of each firm's debt and equity?
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Intermediate Microeconomics
Authors: Hal R. Varian
9th edition
978-0393123975, 393123979, 393123960, 978-0393919677, 393919676, 978-0393123968
