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If equity investors require a return of ru15 return on the

EPL, Inc. currently has an all-equity capital structure.? It has an expected perpetual operating income of EBIT=$1,250,000 per year and a corporate tax rate of T_C=35%. The personal tax rate on debt is T_p=32% and the personal tax rate on equity is T_pE=15%. Assume no financial distress costs.

If equity investors require a return of r_U=15% return on the after-tax cash flows of EPL when it is unlevered, what is the firm worth unlevered?

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Finance Basics: If equity investors require a return of ru15 return on the

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