Young Corporation expects an EBIT of $25,250 every year forever. The company currently has no debt,...

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Finance

Young Corporation expects an EBIT of $25,250 every year forever.The company currently has no debt, and its cost of equity is 12percent. The corporate tax rate is 35 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.)

  Company value $

b-1.
Suppose the company can borrow at 7 percent. What will the valueof the company be if it takes on debt equal to 40 percent of itsunlevered value? (Do not round intermediate calculationsand round your answer to 2 decimal places, e.g.,32.16.)

  Company value $

b-2.
Suppose the company can borrow at 7 percent. What will the valueof the company be if it takes on debt equal to 100 percent of itsunlevered value? (Do not round intermediate calculationsand round your answer to 2 decimal places, e.g.,32.16.)

  Company value $

c-1.
What will the value of the company be if it takes on debt equalto 40 percent of its levered value? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.)

  Company value $

c-2.
What will the value of the company be if it takes on debt equalto 100 percent of its levered value? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.)

  Company value $

Answer & Explanation Solved by verified expert

4.1 Ratings (466 Votes)

Answer a Unlevered Value EBIT 1 tax Cost of Equity Unlevered Value 25250 1 035 012 Unlevered Value 13677083 Answer b1 Value of Debt 40 Unlevered Value Value of Debt 40 13677083 Value of Debt See Answer

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Young Corporation expects an EBIT of $25,250 every year forever.The company currently has no debt, and its cost of equity is 12percent. The corporate tax rate is 35 percent. a.What is the current value of the company? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.) Company value$ b-1.Suppose the company can borrow at 7 percent. What will the valueof the company be if it takes on debt equal to 40 percent of itsunlevered value? (Do not round intermediate calculationsand round your answer to 2 decimal places, e.g.,32.16.) Company value$ b-2.Suppose the company can borrow at 7 percent. What will the valueof the company be if it takes on debt equal to 100 percent of itsunlevered value? (Do not round intermediate calculationsand round your answer to 2 decimal places, e.g.,32.16.) Company value$ c-1.What will the value of the company be if it takes on debt equalto 40 percent of its levered value? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.) Company value$ c-2.What will the value of the company be if it takes on debt equalto 100 percent of its levered value? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.) Company value$