Q. 1. Gomez computer systems have an EBIT of $200,000, a growth rate of 6% and its tax rate is 40%. In order to support growth, Gomez must reinvest 20% of its EBIT in net operating assets. Gomez has $300,000 in 8% debts outstanding and a similar company with no debt has a cost of equity of 11%.

According to MM extension with growth, illustrate what is value of Gomez's tax shield?

According to MM extension with growth, illustrate what is Gomez's unlevered value?

According to MM extension with growth, illustrate what is Gomez's value of equity?

2. Trumbull, Inc., has total value (debt plus equity) of $500 million and $200 million face value of 1-year zero coupon debt. Volatility (σ) of Trumbull's total value is 0.60 and risk-free rate is 5%. Assume that N (d1) = 0.9720 and N (d2) = 0.9050.

Illustrate what is value (in millions) of Trumbull's equity if it is viewed as an option?

Illustrate what is value (in millions) of Trumbull's debt if its equity is viewed as an option?

Illustrate what is yield on Trumbull's debt?