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.

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.

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.)

Explanation / Answer

Value of the firm be if the company takes on debt equal to 40 percent of its unlevered value Particulars Weight Interest Rate Weighted Capitalization Rate (weight x interest rate) Equity 0.6 12% 7.20% Debt 0.4 7(1-.35)=4.55% 1.82% 9.02% Value of the Firm=EBIT/Capitalization Rate 25250/9.02% 279933.4812 Value of the firm be if the company takes on debt equal to 100 percent of its unlevered value Particulars Weight Interest Rate Weighted Capitalization Rate (weight x interest rate) Debt 1 7(1-.35)=4.55% 1.82% 1.82% Value of the Firm=EBIT/Capitalization Rate 25250/1.82% 1387362.637

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