Can you please help me with problem 11 in the attached spreadsheet?

PIM842 - Problem Set #3 1 2 3 4 5 6 7 8 9 10 C. B. C. C. A. A. A. D. A. C. Has a zero expected NPV The markets for financial assets are more competitive Successive price changes are independent of each other The correlation between the return one week and the return the next week is a statistically significant -0.40 Higher returns than the benchmark portfolio after expenses Trust market prices If markets are efficient in the weak form, then it is impossible to make consistently superior profits by using trading rules based on past returns More than one of the above (A&B) The firm's mix of debt, equit and other securities As EBIT increased, EPS increases by a larger percentage 11 An investment costs $10,000 and is expected to produce EBIT of $2,000 (in cash) forever, The market's required return on a similar-risk assets is Ra = 10%. You are considering two alternatives a) Unlevered: Investing the $10,000 as equity and issuing 1,000 shares at a par value of $10 per share b) Levered: Investing the $10,000 and issuing yourselft $8,000 in risk-free perpetual debt at the market rate of Rd = 8% and 200 shares at a par value of $10 per share. In this case, the $10,000 investment would be finannced with $8,000 in debt and $2,000 in equity. In either case, you intent to hold all the debt and the equity. Also, recall that V = CF/r for a perpetuity a. Complete the missing files in the income statement below: Earnings (as cash flow) before interest and taxes Less: Interest Earnings before taxex (as cash flow) Less: Taxes (Tc = 0) Earnings (as cash flow) Cash flow to both debt an equity Unlevered $2,000 Levered $2,000 $0 $0 b. Find the value of the levered firm (Vl = D+E) according to MM's Proposition I c. Find the equity required return (Re) according to MM's Propisiton II d. Find the market value of debt by discounting interest payments to debt at the cost of debt e. Find the market value of levered equity by discounting equity cas flows at the equity required return f. Find the weighted average cos to capital Rwacc of the levered firm g. The assest beta (the beta of the all-equity firm) is 1.2. the beta of debt is 0.2. What is the beta of levered equity? $55.00 NPV $37.00 $0.00 $(20.00) 40% 100% 140%