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Question: Lola's Dance Studio currently has debt outstanding with a market value of $100,000 and a cost of 8 percent. The company has EBIT of $8,000 that is expected to continue in perpetuity. Assume there are no taxes.

I. What is the value of the company's equity?

II. What is the debt-to-value ratio?

III. What are the equity value and debt-to-value ratio if the company's growth rate is 3 percent?

IV. What are the equity value and debt-to-value ratio if the company's growth rate is 7 percent?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M92681342

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