Q. Cavo Corporation expects the EBIT of $23,000 every year forever. Company presently has no debt, also its cost of equity is 15%. Corporate tax rate is 35%.
a) What is the present value of the company?
b) Suppose the company can borrow at 11 each cent. What will the value of the firm be if the company takes on debt equal to 50 each cent of its unlevered value?
c) Suppose the company can borrow at 11 each cent. What will the value of the firm be if the company takes on debt equal to 100 each cent of its unlevered value?
d) What will the value of firm be if company takes on debt equal to 50% of its levered value?
e) Find out the value of firm be if company takes on debt equal to 100% of its levered value?