Part 2- Dynamic Capital Structure of Modigliani-Miller- Adjusted Present Value (APV)

The Company generated $1,465,201.43 in earnings before interest and taxes (EBIT) last year and is expected to increase by 5 percent for the next 3 years and after which at a constant rate of 3 percent in perpetuity. The expected interest expense is also expected to grow over next 3 years before the capital structure becomes constant. The cost of debt is 10 percent and the Companys cost of capital currently is 20 percent. Any investment in net working capital and capital expenditure is equal to its depreciation allowances. The corporate tax rate is 35 percent. Interest rate is 10 percent.

1. What is the estimated terminal unlevered value of operations (i.e., the value at Year 3 immediately after the FCF at Year 3)?
2. What is the current unlevered value of operations?
3. What is the terminal value of the tax shield at Year 3?
4. What is the current value of the tax shield?
5. What is the current total value?