Calculate the value of the levered firm based on: Assuming that there is an unlevered firm and a levered firm. The basic information is given by the following table. Table 1: Information of the firms Unlevered firm Levered firm EBIT 10,000 10,000 Interest 0 3,200 Taxable income 10,000 6,800 Tax (tax rate: 34%) 3,400 2,312 Net income 6,600 4,488 CFFA 0 -3,200 Assuming that cost of debt =8%; unlevered cost of capital =10%; systematic risk of the asset is 1.5
Calculate the value of the levered firm based on: Assuming that there is an unlevered firm and a levered firm. The basic information is given by the following table. Table 1: Information of the firms Unlevered firm Levered firm EBIT 10,000 10,000 Interest 0 3,200 Taxable income 10,000 6,800 Tax (tax rate: 34%) 3,400 2,312 Net income 6,600 4,488 CFFA 0 -3,200 Assuming that cost of debt =8%; unlevered cost of capital =10%; systematic risk of the asset is 1.5
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Calculate the value of the levered firm based on:
Assuming that there is an unlevered firm and a levered firm. The basic information is given by the following table.
Table 1: Information of the firms
|
|
Unlevered firm |
Levered firm |
|
EBIT |
10,000 |
10,000 |
|
Interest |
0 |
3,200 |
|
Taxable income |
10,000 |
6,800 |
|
Tax (tax rate: 34%) |
3,400 |
2,312 |
|
Net income |
6,600 |
4,488 |
|
CFFA |
0 |
-3,200 |
Assuming that cost of debt =8%; unlevered cost of capital =10%; systematic risk of the asset is 1.5
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