Question
Letang Corporation expects an EBIT of $22,750 every year forever. The company currently has no debt, and its cost of equity is 14 percent. The
Letang Corporation expects an EBIT of $22,750 every year forever. The company currently has no debt, and its cost of equity is 14 percent. The company can borrow at 8.5 percent and the corporate tax rate is 40. |
Requirement 1: |
What is the current value of the company? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) |
Value of the firm | $ |
Requirement 2: |
(a) What will the value of the firm be if the company takes on debt equal to 50 percent of its unlevered value? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) |
Value of the firm | $ |
(b) What will the value of the firm be if the company takes on debt equal to 100 percent of its unlevered value? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) |
Value of the firm | $ |
Requirement 3: |
(a) What will the value of the firm be if the company takes on debt equal to 50 percent of its levered value?(Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) |
Value of the firm | $ |
(b) What will the value of the firm be if the company takes on debt equal to 100 percent of its levered value? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) |
Value of the firm | $ |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started