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Every year from now on, the EBIT of Accort industries has a 60% probability of being $50 million or $10 million otherwise. Assume that the
Every year from now on, the EBIT of Accort industries has a 60% probability of being $50 million or $10 million otherwise. Assume that the annual depreciation expense is equal to its capital expenditure and that annual increases in net working captial are zero. The current risk-free rate is 5% and Acorts assets have a cost of capital of 10%. Assume that there are no taxes. If Accorts market value of debt is $100 million, what is the current market value of its equity?
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