Q1. Consider an all-equity firm that is contemplating going into debt. The market value of equity is calculated as Free Cash Flow/required rate of return. Current Proposed Assets $10,000 $18,000 Debt...

Q1. Consider an all-equity firm that is contemplating going into debt. The market value of equity is calculated as Free Cash Flow/required rate of return.

                                    Current            Proposed

Assets                          $10,000           $18,000

Debt                                     $0             $8,000

Equity                         $10,000           $10,000

Debt/Equity ratio              0.00                 1.00

Interest rate                         n/a                    7%

Shares outstanding             500                 500

Share price                         $20                 $20

(b) If the company adds the proposed amount of debt and EBIT is expected to expand proportionally, fill out the table in (a) after the debt is issued.