Suppose the corporate tax rate is 40%. Consider a firm that earns $2,500 before interest and...

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Suppose the corporate tax rate is 40%. Consider a firm thatearns $2,500 before interest and taxes each year with no risk. The?firm's capital expenditures equal its depreciation expenses each?year, and it will have no changes to its net working capital. The?risk-free interest rate is 4%.
a. Suppose the firm has no debt and pays out its net income as adividend each year. What is the value of the? firm's equity?
b. Suppose instead the firm makes interest payments of $1,000per year. What is the value of? equity? What is the value of?debt?
c. What is the difference between the total value of the firmwith leverage and without? leverage?
d. The difference in ?(c?) is equal to what percentage of thevalue of the? debt?

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Answer a EBIT 2500 Tax Rate 40 Net Income EBIT 1 Tax Rate Net Income 2500 1 040 Net Income 1500 Value of Equity Net Income Riskfree Interest Rate Value of Equity 1500 004 Value of See Answer

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Suppose the corporate tax rate is 40%. Consider a firm thatearns $2,500 before interest and taxes each year with no risk. The?firm's capital expenditures equal its depreciation expenses each?year, and it will have no changes to its net working capital. The?risk-free interest rate is 4%.a. Suppose the firm has no debt and pays out its net income as adividend each year. What is the value of the? firm's equity?b. Suppose instead the firm makes interest payments of $1,000per year. What is the value of? equity? What is the value of?debt?c. What is the difference between the total value of the firmwith leverage and without? leverage?d. The difference in ?(c?) is equal to what percentage of thevalue of the? debt?