Question
Equity value in a levered firm.Air Seattle has an annual EBIT of $1 comma 200 comma 000, and the WACC in the unlevered firm is
Equity value in a levered firm.Air Seattle has an annual EBIT of $1 comma 200 comma 000, and the WACC in the unlevered firm is 17 %. The current tax rate is 35%. Air Seattle will have the same EBIT forever. If the company sells debt for $ 2 comma 200 comma 000 with a cost of debt of 23%, what is the value of equity in the unlevered firm and in the levered firm? What is the value of debt in the levered firm? What is the government's value in the unlevered firm and in the levered firm?
If Air Seattle's WACC is 17% and it will have the same EBIT forever, what is the current value of Air Seattle?
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