Homework Answers
a. unlevered firm value = pre tax earning * ( 1- tax rate) /
cost of capital
= $25,000,000 * (1 - 0.35) / 0.12 = $135,416,666.67
b. levered firm value = unlevered firm value + total debt * tax
rate
=$135,416,666.67 + $75,000,000 * 0.35
= $161,666,666.67
c. Equity value = levered firm value - debt = $161,666,666.67 - $75,000,000 = $86,666,666.67
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