Question
Unlevered Levered EBIT (perpetual) $250,000.00 $250,000.00 DEBT $0.00 $1,250,000.00 COST OF CAPITAL 12.00% INTEREST RATE 8.00% 8.00% TAX RATE 34.00% 34.00% Value of Firms, corporate
| Unlevered | Levered | |
| EBIT (perpetual) | $250,000.00 | $250,000.00 |
| DEBT | $0.00 | $1,250,000.00 |
| COST OF CAPITAL | 12.00% | |
| INTEREST RATE | 8.00% | 8.00% |
| TAX RATE | 34.00% | 34.00% |
Value of Firms, corporate tax only
| $1,375,000.00 | Vu |
| $1,800,000.00 | Vl |
| $550,000.00 | Equity Vl |
1. Assume that the marginal personal tax rates for debt and equity income are 40% and 20%, respectively. The gain from leverage is $150,000. Please show detailed calculations for the new value of the unleveraged and leveraged firms
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Options Futures and Other Derivatives
Authors: John C. Hull
10th edition
013447208X, 978-0134472089
