Change Corporation expects an EBIT of $55,000 every year forever. The company currently has no debt,...

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Finance

Change Corporation expects an EBIT of $55,000 every yearforever. The company currently has no debt, and its cost of equityis 14 percent. The corporate tax rate is 22 percent.

a.
What is the current value of the company? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.)
b-1. Suppose the company can borrow at 9 percent. What will the value ofthe firm be if the company takes on debt equal to 60 percent of itsunlevered value? (Do not round intermediate calculationsand round your answer to 2 decimal places, e.g.,32.16.)
b-2. Suppose the company can borrow at 9 percent. What will the value ofthe firm be if the company takes on debt equal to 100 percent ofits unlevered value? (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g.,32.16.)
c-1. Whatwill the value of the firm be if the company takes on debt equal to60 percent of its levered value? (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g.,32.16.)
c-2. Whatwill the value of the firm be if the company takes on debt equal to100 percent of its levered value? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.)

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4.3 Ratings (599 Votes)

a Perpetual EBIT 55000 Since at present company does not have any debt therefore cost of equity unlevered cost of equity 14 and current value of company value of unleverd firm In case of perpetual EBIT Value of unlevered firm EBIT1tax rate Unlevered cost of equity Current value of company Value of unlevered firm EBIT1tax rate Unlevered cost of equity 55000 122 See Answer

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Change Corporation expects an EBIT of $55,000 every yearforever. The company currently has no debt, and its cost of equityis 14 percent. The corporate tax rate is 22 percent. a.What is the current value of the company? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.)b-1.Suppose the company can borrow at 9 percent. What will the value ofthe firm be if the company takes on debt equal to 60 percent of itsunlevered value? (Do not round intermediate calculationsand round your answer to 2 decimal places, e.g.,32.16.)b-2.Suppose the company can borrow at 9 percent. What will the value ofthe firm be if the company takes on debt equal to 100 percent ofits unlevered value? (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g.,32.16.)c-1.Whatwill the value of the firm be if the company takes on debt equal to60 percent of its levered value? (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g.,32.16.)c-2.Whatwill the value of the firm be if the company takes on debt equal to100 percent of its levered value? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.)

a.	What is the current value of the company? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.)
b-1.	Suppose the company can borrow at 9 percent. What will the value ofthe firm be if the company takes on debt equal to 60 percent of itsunlevered value? (Do not round intermediate calculationsand round your answer to 2 decimal places, e.g.,32.16.)
b-2.	Suppose the company can borrow at 9 percent. What will the value ofthe firm be if the company takes on debt equal to 100 percent ofits unlevered value? (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g.,32.16.)
c-1.	Whatwill the value of the firm be if the company takes on debt equal to60 percent of its levered value? (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g.,32.16.)
c-2.	Whatwill the value of the firm be if the company takes on debt equal to100 percent of its levered value? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.)