Calvert Corporation expects an EBIT of $22,500 every year forever The company currently has no debt, and its cost of equity is 13 9 percent The company can borrow at 8 7 percent and the corporate tax rate is 21 percent a What is the current value of the company (Do not round intermediate calculations and round your answers to 2 decimal places, e g , 32 16 ) b 1 What will the value of the firm be if the company takes on debt equal to 40 percent of its unlevered value (Do not round intermediate calculations and round your answers to 2 decimal places, e g , 32 16 ) b 2 What will the value of the firm be if the company takes on debt equal to 100 percent of its unlevered value (Do not round intermediate calculations and round your answers to 2 decimal places, e g , 32 16 ) c 1 What will the value of the firm be if the company takes on debt equal to 40 percent of its levered value (Do not round intermediate calculations and round your answers to 2 decimal places, e g , 32 16 ) c 2 What will the value of the firm be if the company takes on debt equal to 100 percent of its levered value (Do not round intermediate calculations and round your answers to 2 decimal places, e g , 32 16 )

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jul 10, 2024

Calvert Corporation expects an EBIT of $22,500 every year forever. The company currently has no debt, and its cost of equity is 13.9 percent. The

Calvert Corporation expects an EBIT of $22,500 every year forever. The company currently has no debt, and its cost of equity is 13.9 percent. The company can borrow at 8.7 percent and the corporate tax rate is 21 percent.

a.	What is the current value of the company? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
b-1.	What will the value of the firm be if the company takes on debt equal to 40 percent of its unlevered value? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
b-2.	What will the value of the firm be if the company takes on debt equal to 100 percent of its unlevered value? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
c-1.	What will the value of the firm be if the company takes on debt equal to 40 percent of its levered value? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
c-2.	What will the value of the firm be if the company takes on debt equal to 100 percent of its levered value? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)