Calculate the following values:a) Value of Unlevered Firm 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 following values:a) Value of Unlevered Firm 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
Chapter13: Capital Structure Concepts
Section: Chapter Questions
Problem 2P
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- Calculate the following values:
a) Value of Unlevered FirmAssuming 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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