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1) Cavo Corporation expects the EBIT of $23,000 every year forever. Company presently has no debt, and its cost of equity is 15%. Corporate tax rate is 35%.

a) What is the present value of the company?

b) Assume the company can borrow at 11 percent. What will the value of the firm be if the company takes on debt equal to 50 percent of its unlevered value?

c) Assume the company can borrow at 11 percent. What will the value of the firm be if the company takes on debt equal to 100 percent of its unlevered value?

d) What will the value of firm be if company takes on debt equal to 50% of its levered value?

e) Determine the value of firm be if company takes on debt equal to 100% of its levered value?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M915163

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