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cost of debt 8%       unlevered cost of capital 10%       systematic risk of asset 1.5       1)             Unlevered Firm Levered Firm     EBIT 10000 10000     Interest 0 3200     Taxable Income 10000 6800   34% Tax  3400 2312     Net Income 6600 4488     CFFA 0 -3200             2) PV of the tax shield?                   Value of levered firm 3200       tax rate 34%         (value of levered firm*tax rate)/(1+cost of debt)       PV of tax shield 1007.41                   value of levered firm/cost of debt     3) Size of debt 40000     Hi I really need help with question 4 based on the above information Thank you! Assuming that cost of debt =8%; unlevered cost of capital =10%; systematic risk of the asset is 1.5 1. Fill in the blanks 2. What is the present value of the tax shield? 3. What is the size of debt? 4. Calculate the following values:a) value of unlevered firm; b) value of the levered firm; c) equity value; d) Cost of equity; e) cost of capital; f) systematic risk of the equity

cost of debt 8%       unlevered cost of capital 10%       systematic risk of asset 1.5       1)             Unlevered Firm Levered Firm     EBIT 10000 10000     Interest 0 3200     Taxable Income 10000 6800   34% Tax  3400 2312     Net Income 6600 4488     CFFA 0 -3200             2) PV of the tax shield?                   Value of levered firm 3200       tax rate 34%         (value of levered firm*tax rate)/(1+cost of debt)       PV of tax shield 1007.41                   value of levered firm/cost of debt     3) Size of debt 40000     Hi I really need help with question 4 based on the above information Thank you! Assuming that cost of debt =8%; unlevered cost of capital =10%; systematic risk of the asset is 1.5 1. Fill in the blanks 2. What is the present value of the tax shield? 3. What is the size of debt? 4. Calculate the following values:a) value of unlevered firm; b) value of the levered firm; c) equity value; d) Cost of equity; e) cost of capital; f) systematic risk of the equity

Essentials Of Investments
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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100%
cost of debt 8%      
unlevered cost of capital 10%      
systematic risk of asset 1.5      
1)        
    Unlevered Firm Levered Firm  
  EBIT 10000 10000  
  Interest 0 3200  
  Taxable Income 10000 6800  
34% Tax  3400 2312  
  Net Income 6600 4488  
  CFFA 0 -3200  
         
2) PV of the tax shield?      
         
  Value of levered firm 3200    
  tax rate 34%    
    (value of levered firm*tax rate)/(1+cost of debt)    
  PV of tax shield 1007.41    
         
    value of levered firm/cost of debt    
3) Size of debt 40000    

Hi I really need help with question 4 based on the above information Thank you!

Assuming that cost of debt =8%; unlevered cost of capital =10%; systematic risk of the asset is 1.5

1. Fill in the blanks

2. What is the present value of the tax shield?

3. What is the size of debt?

4. Calculate the following values:
a) value of unlevered firm; b) value of the levered firm; c) equity value; d) Cost of equity; e) cost of capital; f) systematic risk of the equity

 

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