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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           4)       a)   EBIT(1-T)/cost of capital     Value of unlevered firm 66000           b)   value of unlevered firm+Tax*size of debt     Value of levered firm 79600           c)   total value of unlevered firm-debt      Equity value 39600   Hi, I need help with question 4 subparts d, e, and f! Thank you! 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           4)       a)   EBIT(1-T)/cost of capital     Value of unlevered firm 66000           b)   value of unlevered firm+Tax*size of debt     Value of levered firm 79600           c)   total value of unlevered firm-debt      Equity value 39600   Hi, I need help with question 4 subparts d, e, and f! Thank you! 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  
       
4)      
a)   EBIT(1-T)/cost of capital  
  Value of unlevered firm 66000  
       
b)   value of unlevered firm+Tax*size of debt  
  Value of levered firm 79600  
       
c)   total value of unlevered firm-debt   
  Equity value 39600  

Hi, I need help with question 4 subparts d, e, and f! Thank you!

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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