Capital Structure and Growth Edwards Construction currently has debt outstanding with a market value of $75,000 and a cost of 9 percent. The company has EBIT of $6,750 that is expected to continue in perpetuity. Assume there are no taxes.
a. What is the value of the company’s equity? What is the debt-to-value ratio?
b. What are the equity value and debt-to-value ratio if the company’s growth rate is 3 percent?
c. What are the equity value and debt-to-value ratio if the company’s growth rate is 7 percent?