Homework Answers
a)
Value of firm = [EBIT(1 - tax)] / Cost of equity
Value of firm = [103,000(1 - 0.22)] / 0.13
Value of firm = 80,340 / 0.13
Value of firm = 618,000.00
b)
Value of firm = Value of unlevered firm + tax(debt)
Value of firm = 618,000 + 0.22(193,000)
Value of firm = $660,460.00
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