Hunter Corporation expects an EBIT of $61,000 every year forever. The company currently has no debt...

90.2K

Verified Solution

Question

Finance

Hunter Corporation expects an EBIT of $61,000 every yearforever. The company currently has no debt and its cost of equityis 12 percent. The corporate tax rate is 25 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 6 percent. What will thevalue of the company be if takes on debt equal to 50 percent of itsunlevered value? (Do not round intermediate calculations and roundyour answer to 2 decimal places, e.g., 32.16.)
b-2. Suppose the company can borrow at 6 percent. What will thevalue of the company be if takes on debt equal to 100 percent ofits unlevered value? (Do not round intermediate calculations andround your answer to 2 decimal places, e.g., 32.16.)
c-1. What will the value of the company be if takes on debtequal to 50 percent of its levered value? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.)
c-2. What will the value of the company be if takes on debtequal to 100 percent of its levered value? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.)

Answer & Explanation Solved by verified expert

4.2 Ratings (513 Votes)

ACurrent value of company V EBIT1Tax RateCost of equity 6100012512 381250 B1the value of the company be if takes on debt equal to 50 percent of See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Hunter Corporation expects an EBIT of $61,000 every yearforever. The company currently has no debt and its cost of equityis 12 percent. The corporate tax rate is 25 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 6 percent. What will thevalue of the company be if takes on debt equal to 50 percent of itsunlevered value? (Do not round intermediate calculations and roundyour answer to 2 decimal places, e.g., 32.16.)b-2. Suppose the company can borrow at 6 percent. What will thevalue of the company be if takes on debt equal to 100 percent ofits unlevered value? (Do not round intermediate calculations andround your answer to 2 decimal places, e.g., 32.16.)c-1. What will the value of the company be if takes on debtequal to 50 percent of its levered value? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.)c-2. What will the value of the company be if takes on debtequal to 100 percent of its levered value? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.)