Problem:
Great lakes shipping is an all equity firm with anticipated earnings before interest and taxes of $439000 annually forever. The present cost of equity is 16.4 percent. Currently, the firm has no debt but is considering borrowing $1.25 milion at 8.5 percent interest. The tax rate is 36 percent.
Required:
Question: What is the value of the levered firm?
Note: Show supporting computations in good form.