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Ice Cream Sandwich Co. expects EBIT of $150,000 next year, and expects earnings to grow at a rate of 2% per year indefinitely. Ice Cream Sandwich Co. currently has no debt and its cost of equity is 20%. The firm can borrow at 4%. The corporate tax rate is 20%.

What is the value of the firm? Enter your answer rounded to two decimal places. Correct response: 666,666.670.01

Given that the firm has a value of $666,666.67 when it is all equity, what will be the value of the firm if Ice Cream Sandwich Co. borrows $220,000 of permanent debt and uses the proceeds to buy back stock? Enter your answer rounded to two decimal places. Correct response: 710,666.670.01

Given that the firm has a value of $666,666.67 when it is all equity, how can Ice Cream Sandwich Co. maximize the value of the firm? What will be the maximum value if there are no costs to financial distress? Enter your answer rounded to two decimal places. Correct response: 833,333.330.02

Suppose that with $220,000 of debt, there is a 18% probability of financial distress, in which case the firm will have a present value of $275,000. What is the value of the firm in this case? Recall that the value of the firm with $220,000 debt and no costs to financial distress was $710,666.67. Enter your answer rounded to two decimal places.

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