An un-levered firm, The Jedi Knights Company Ltd. has an EBIT of $450,000 that it...
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An un-levered firm, The Jedi Knights Company Ltd. has an EBIT of $450,000 that it expects it will earn forever and it pays all of its earnings as dividends to shareholders (ie. no growth). The Jedi Knights Company Ltd. has 287,234 shares issued and outstanding.
- Assuming a world of no taxes, no cost for the risk of default, what is the value of this all equity firm and what is the WACC for the company? Show your work! You need the table in part c to answer this question.
- if the firm issues $100,000 of 6% bonds, what is the value of the firm, the value of equity and the WACC for the firm?
- Complete the following schedule.
- Assuming a world of taxes, no cost for the risk of default and a cost of borrowing using bonds of 6 percent, what is the value of this all equity firm and what is the WACC for this firm if the tax rate is 40%? Show your work!
EBIT Un-levered ke Tax Rate T-bill rate TSX 450,000 9.4% 0% 4% 10% Value of Debt - 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 Kb 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% Stock's Beta 0.90000 0.91209 0.92471 0.93789 0.95167 0.96609 0.98120 0.99705 1.01370 WACC % Debt Value of Equity Value of Debt % Equity Value of Firm Kb Kd Ke WACC
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