Gartner Systems has no debt and an equity cost of capital of

10.9%.

Gartner's current market capitalization is

$99

million, and its free cash flows are expected to grow at

3.3%

per year. Gartner's corporate tax rate is 35 %. Investors pay tax rates of

35 % on interest income and 19% on equity income.

a. Suppose Gartner adds $47 million in permanent debt and uses the proceeds to repurchase shares. What will Gartner's levered value be in this case?

b. Suppose instead Gartner decides to maintain a 50% debt-to-value ratio going forward. If Gartner's debt cost of capital is

6.78%, what will Gartner's levered value be in this case?

Hint:

Make sure to round all intermediate calculations to at least four decimal places.