Question

Hunter Corporation expects an EBIT of $53,000 every year forever. The company currently has no debt and its cost of equity is 15 percent. The corporate tax rate is 21 percent a. What is the current value of the company? (Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b-1. Suppose the company can borrow at 12 percent. What will the value of the company be if takes on debt equal to 50 percent of its unlevered value vered value? (Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b-2. Suppose the company can borrow at 12 percent. What will the value of the company be if takes on debt equal to 100 percent of its unlevered value? (Do not round Intermediate calculations and round your answer to 2 decimal places, e.g. 32.16.) c-1. What will the value of the company be if takes on debt equal to 50 percent of its levered value? (Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c-2. What will the value of the company be if takes on debt equal to 100 percent of its levered value? (Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current value b-1. Value of the company b-2. Value of the company c-1. Value of the company C-2 Value of the company

Answer 1

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- 2x Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select Cells LY LZ MA MB MC 338 PV, FV, ANNUITY (Autosaved) - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins % Cut Calibri 11 A A = = = V Wrap Text General Ea Copy Paste B I U B- A Format Painter Merge & Center - $ -% , ;. Formatting as Table Styles Clipboard Font Alignment Number Styles LV354 LN LO LP LQ LR LS LT LU LV L W LX 335 336 337 HUNTER VALUE OF THE FIRM CURRENT VALUE OF THE COMPANY 279133.33 53000*(1-0.21)/0.15 EBIT*(1-t)/ro 339 340 b-1 DEBT = 50% OF ITS UNLEVERED VALUE = 139566.67 (50%*279133.33) 341 342 VALUE OF COMPANY = VALUE OF LEVERED FIRM = VALUE OF UNLEVERED FIRM + (DEBT*TAX RATE) VALUE OF LEVERED FIRM = 279133.33+ (139566.67*21%) = 308442.33 344 345 b- DEBT = 100% OF ITS UNLEVERED VALUE = 279133.33 346 347 VALUE OF COMPANY = VALUE OF LEVERED FIRM = VALUE OF UNLEVERED FIRM + (DEBT*TAX RATE) VALUE OF LEVERED FIRM = 155000 + (155000*25%) = 348916.67 349 C-1 DEBT = 50% OF ITS LEVERED VALUE 351 VALUE OF LEVERED FIRM = VL = 279133.33 +0.5(VL)* (21%) VL = 279133.33 + 0.105(VL) 353 0.895 (VL) = 279133.33 354 VALUE OF COMPANY = VL = 311880.82 343 348 350 352 355 H N CAP STRU VALUE profit margin loan with points LOCK BOX DILUTION DOLLAR COST AVG EXPONPER APR CPI ear FVA LOAN OPTIONSpv, fv, annuity ferences 0 (+) Rea 1 0 pva 52 53 0 | THE TU 120% - * 10 ENG . B 9 27-11-2019

PV, FV, ANNUITY (Autosaved) - Microsoft Excel (Product Activation Failed) Review View Add-Ins File Home Insert Page Layout Formulas Data - 2x % Cut Σ AutoSum : A Fill 2 Sort & m Find & Cell Styles Insert Delete Format 2 Clear Filter Editing Select Cells LX LY LZMA MB MC Calibri 11 A A = = = V Wrap Text General E Copy Paste BIU D A E Merge & Center - $ Format Painter % & ... Conditional Format Formatting as Table Clipboard Font Alignment Number Styles LU349 fax 2 LN LO LP LQ LR LS LT LU LVLW 349 350 C-1 DEBT = 50% OF ITS LEVERED VALUE VALUE OF LEVERED FIRM = VL = 279133.33+0.5(VL)* (21%) 352 VL = 279133.33 + 0.105(VL) 353 0.895 (VL) = 279133.33 354 VALUE OF COMPANY = VL = 311880.82 351 355 356 C-2 357 358 359 DEBT = 100% OF ITS LEVERED VALUE VALUE OF LEVERED FIRM = VL = 279133.33+ (VL)*(21%) VL = 279133.33 +0.21(VL) 0.79 (VL) = 279133.33 VALUE OF COMPANY = VL = 353333.33 360 361 362 363 364 365 366 367 368 369 pv, fv, annuity CAP STRU VALUE profit margin_loan with points LOCK BOX DILUTION DOLLAR COST AVG EXPO NPER APR CPI ear FVA LOAN OPTIONS ferences Rea 1 pva s2 $ 30 | THE TU 120% - * 10 ENG 0 (+) . B 9 27-11-2019