cost of debt 8% unlevered cost of capital 10% systematic risk of asset 1.5 1) Unlevered Firm Levered Firm EBIT 10000 10000 Interest 0 3200 Taxable Income 10000 6800 34% Tax 3400 2312 Net Income 6600...































































































































































































cost of debt8%
unlevered cost of capital10%
systematic risk of asset1.5
1)
Unlevered FirmLevered Firm
EBIT1000010000
Interest03200
Taxable Income100006800
34%Tax34002312
Net Income66004488
CFFA0-3200
2)PV of the tax shield?
Value of levered firm3200
tax rate34%
(value of levered firm*tax rate)/(1+cost of debt)
PV of tax shield1007.41
value of levered firm/cost of debt
3)Size of debt40000
4)
a)EBIT(1-T)/cost of capital
Value of unlevered firm66000
b)value of unlevered firm+Tax*size of debt
Value of levered firm79600
c)total value of unlevered firm-debt
Equity value39600

Hi, I need help with question 4 subparts d, e, and f! Thank you!


1. Fill in the blanks


2. What is the present value of the tax shield?


3. What is the size of debt?


4. Calculate the following values:
a) value of unlevered firm; b) value of the levered firm; c) equity value; d) Cost of equity; e) cost of capital; f) systematic risk of the equity



Jun 05, 2022
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