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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
17.       Firm Value   Cavo Corporation expects an EBIT of $19,750 every year for- ever. The company currently has no debt, and its cost of equity is 15 percent.
a.  What is the current value of the company?
b.  Suppose the company can borrow at 10 percent. If the corporate tax rate is 35 percent, what will the value of the firm be if the company takes on debt equal to 50 percent of its unlevered value? What if it takes on debt equal to 100 percent of its unlevered value?
c.   What will the value of the firm be if the company takes on debt equal to 50 per- cent of its levered value? What if the company takes on debt equal to 100 per- cent of its levered value?
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