Question

Problem 16-17 Firm Value [LO2] Change Corporation expects an EBIT of $27,000 every year forever. The company currently has no debt, and its cost of equity is 13 percent. The corporate tax rate is 23 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 7 percent. What will the value of the firm be if the company takes on debt equal to 60 percent of its unlevered 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 7 percent. What will the value of the firm be if the company 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 firm be if the company takes on debt equal to 60 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 firm be if the company 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.)

Answer 1

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PV, FV, ANNUITY (Autosaved) Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins Σ AutoSum - Cut AC Wrap Text Calibri 11 General E Copy Fill Merge & Center Paste B I U +.0 .00 .00 0 Conditional Format Cell Insert Delete Format Sort & Find & Filter Select % Format Painter Clear Formatting as Table Styles Clipboard Number Editing Font Alignment Styles Cells ffx LU50 LW LX LN LO LP LQ LR LS LT LU LV LY LZ МА MB 47 48 49 CHANGE CORP 50 51 VALUE OF THE FIRM 52 159923.08 27000*(1-0.23)/0.13 EBIT*(1-t)/ro 53 CURRENT VALUE OF THE COMPANY a 54 b-1 95953.85 (60%*159923.08) 55 DEBT 60% OF ITS UNLEVERED VALUE = 56 VALUE OF COMPANY = VALUE OF LEVERED FIRM = VALUE OF UNLEVERED FIRM + (DEBT*TAX RATE) 57 VALUE OF LEVERED FIRM = 159923.08 + (95953.85*23%) 181992.47 58 59 DEBT 100% OF ITS UNLEVERED VALUE = b-2 60 159923.08 61 VALUE OF COMPANY = VALUE OF LEVERED FIRM = VALUE OF UNLEVERED FIRM +(DEBT*TAX RATE) 62 VALUE OF LEVERED FIRM = 159923.08 (159923.08*23%) 196705.39 63 64 65 с-1 DEBT 60% OF ITS LEVERED VALUE profit margin CAP STRU VALUE LOCK BOX DILUTION loan with points pv, fv, annuity s3 s7 DOLLAR COST AVG EXPO NPER APR CPI S2 STATE ear FVA pva Rea (-) erences 130% WA 02:48 ENG ll 25-11-2019

PV, FV, ANNUITY (Autosaved) Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins E AutoSum Cut AC Wrap Text Calibri 11 General Copy Fill Merge & Center Paste в IUT +.0 .00 Conditional Format Cell Insert Delete Format Sort & Find & Filter Select % .00 0 Format Painter Clear Formatting as Table Styles Number Editing Clipboard Font Alignment Styles Cells fox LN77 LU LW LX LN LP LQ LR LS LT LV LY LZ МА MB 64 65 с-1 DEBT 60% OF ITS LEVERED VALUE VALUE OF LEVERED FIRM = VL = 159923.08 0.6(VL)*(23%) 66 VL 159923.08 0.138(VL) 67 0.862 (VL) 159923.08 68 185525.61 69 VALUE OF COMPANY = VL = 70 DEBT 100% OF ITS LEVERED VALUE VALUE OF LEVERED FIRM = VL 159923.08 + (VL)*(23%) 71 с-2 72 VL 159923.08 +0.23(VL) 73 0.77 (VL) 159923.08 74 VALUE OF COMPANY = VL = 207692.31 75 76 77 78 79 80 81 82 CAP STRU VALUE pv, fv, annuity profit margin LOCK BOX EXPO loan with points s2 s3 s7 DILUTION DOLLAR COST AVG NPER APR CPI ear FVA STATE pva Rea (-) erences 130% XУ WA 02:48 ENG ll 25-11-2019