Question
An unlevered firm has an EBIT = $250,000, after-tax net income = $165,000, and a cost of capital of 12%. A levered firm with the
An unlevered firm has an EBIT = $250,000, after-tax net income = $165,000, and a cost of capital of 12%.
A levered firm with the same assets and operations has $1.25 million in face value debt paying an 8%
annual coupon; the debt sells for par value in the marketplace. The tax rate is 34%.
a) What is the value of the unlevered firm?
b) What is the value of the levered firm?
c) What is the debt to equity ratio of the levered firm?
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Foundations In Personal Finance
Authors: Dave Ramsey
3rd Edition
1936948524, 978-1936948529
