Jet Corporation expects an EBIT of $17,100 every year forever. The company curre

Question

Jet Corporation expects an EBIT of $17,100 every year forever. The company currently has no debt, and its cost of equity is 10 percent. The corporate tax rate is 35 percent.

What is the current value of the company? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

Suppose the company can borrow at 7 percent. What will the value of the firm be if the company takes on debt equal to 50 percent of its unlevered value? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

Suppose the company can borrow at 7 percent. What will the value of the firm be if the company takes on debt equal to 100 percent of its unlevered value? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

What will the value of the firm be if the company takes on debt equal to 50 percent of its levered value? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

What will the value of the firm be if the company takes on debt equal to 100 percent of its levered value? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

I was only able to answer the first 3 but i'm having trouble with the last 2

Jet Corporation expects an EBIT of $17,100 every year forever. The company currently has no debt, and its cost of equity is 10 percent. The corporate tax rate is 35 percent.

Explanation / Answer

C-1) Unlevered value of firm = 111150

         Amount of existing debt = 111150 x 50%

                                                                =55,575

Total levered value of the firm = 130601.25

New Debt = 130601.25 x50%

                    = 65300.625

Total amount of debt = Existing debt + New debt

                                                = 55,575 + 65300.625

                                                =120875.625

value of levered firm = value of unlevered firm + amount of debt x tax rate

                                                = 111150 + (120875.625 x 35%)

                                                = 153,456.47      

c-2)

New Debt = 130601.25 x100%

                    = 130601.25

Total amount of debt = Existing debt + New debt

                                                = 55,575 + 130601.25

                                                =186176.25

value of levered firm = value of unlevered firm + amount of debt x tax rate

                                                = 111150 + (186176.25x 35%)

                                                = 176,311.69

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