Colt Systems will have EBIT this coming year of $33 million. It will also spend $14 million on total capital expenditures and increases in the net working capital, and have $8 million in depreciation expenses. Colt is currently an all equity firm with a corporate tax rate of 30% and a cost of capital of 12%.

a. if Colt is expected to grow by 8.1% per year, what is the market value of its equity today?

b. If the interest rate on its debt is 10%, how much can colt borrow now and still have non-neg net income this comping year? c. Is there a tax incentive today for Colt to choose a debt to value ratio that exceeds 85%?