Jet Corporation expects an EBIT of $25,250 every year forever. The company curre

Question

Jet Corporation expects an EBIT of $25,250 every year forever. The company currently has no debt, and its cost of equity is 12 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 40 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 40 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.)

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

Explanation / Answer

a) EBIT=$25,250

EAT=$25,250*.65=$16,412.5

Value of the firm=$16,412.5/0.12=$136,771

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