This question is related to Chapter 18 of Berk & Demarzo "Capital Budgeting and Valuation with Leverage". How do the calculations of the firm value using the APV method differ between the following assumptions? The growth rate of the EBIT and the debt-equity ratio will be constant  The growth rate of the EBIT and the interest coverage ratio will be constant. The firm selects the optimal interest coverage ratio and maintains this ratio constant forever (corporate taxes are the only imperfection) Are the values that result different or equal?

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This question is related to Chapter 18 of Berk & Demarzo "Capital Budgeting and Valuation with Leverage".

How do the calculations of the firm value using the APV method differ between the following assumptions?

  1. The growth rate of the EBIT and the debt-equity ratio will be constant 
  2. The growth rate of the EBIT and the interest coverage ratio will be constant.
  3. The firm selects the optimal interest coverage ratio and maintains this ratio constant forever (corporate taxes are the only imperfection)

Are the values that result different or equal?

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