Basic Inc. has constant FCFs of $10M per year. Their unlevered cost of capital is 10%. Basic currently has $20M in debt with an expected return to debtholders of 7%. They plan on reducing the amount of debt in the company by 2% per year, forever. What is the present value of Basic Inc.’s FCFs if the corporate tax rate is 40%?
Using the information from the previous problem,what is the D/E ratio of Basic Inc. today?