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 Taxi debt payment$850,000
Wing Air debt payment$1,300,000
Annual discount rate 12%
What is the value of each firm's debt and equity?
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Financial Management Theory And Practice
Authors: Eugene Brigham, Michael Ehrhardt, Jerome Gessaroli, Richard Nason
3rd Canadian Edition
017658305X, 978-0176583057
