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emmainna [20.7K]
3 years ago
13

17. New Schools expects an EBIT of $100,000 every year forever. The firm currently has no debt, and its cost of equity is 10 per

cent. The firm can borrow at 6 percent and the corporate tax rate is 20 percent. What will the value of the firm be if it converts to 50 percent debt
Mathematics
1 answer:
Natali5045456 [20]3 years ago
3 0

Answer:

$880,000

Step-by-step explanation:

First note that the full meaning of EBIT is earning before interest and tax.

When the company does not have debt, it called unlevered (VU), while a company that has debt is called levered (VL) company. The VU and the VL of the company can be calculated using the VU and VL formula as follows:

Step 1. Calculation of VU

VU = [EBIT × (1 - tax rate)] ÷ cost of equity

       = [$100,000 × (1 - 0.20)] ÷ 0.10

       = [$100,000 × 0.80] ÷ 0.10

       = $80,000 ÷ 0.10

       = $800,000

Step 2. Calculation of VL

VL = VBC + (tax rate × conversion rate × VU)

        = $800,000 + (0.20 × 0.5 × $800,000)

        = $800,00 + $80,000

        = $880,000

Therefore, the value of the firm will be $880,000 if it is converted to 50 percent debt.

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navik [9.2K]

Answer:

160 miles

Step-by-step explanation:

Company A form ​$130 a day plus $0.30 per mile

Company A = 130 + 0.30x

Company B charges ​$50 a day plus $0.80 per mile

Company B = 50 + 0.80x

Where,

x = number of miles

Equate the cost of company A and company B

130 + 0.30x = 50 + 0.80x

Collect like terms

130 - 50 = 0.80x - 0.30x

80 = 0.50x

Divide both sides by 0.50x

x = 80 / 0.50

= 160

x = 160 miles

The number of miles in a day at which the rental costs for Company A and Company B are the same is 160 miles

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2 years ago
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Answer:

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Step-by-step explanation:

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Look here for visuals:

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Kay needs to fix part of her fence.She can buy 6 feet of fencing for $32.00 at a fencing store or 10 feet of fencing for $52.50
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Step-by-step explanation:

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Answer:

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Step-by-step explanation:

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Answer:

9

Step-by-step explanation:

Because line PQ and line PR are both tangent to circle S, it would result in them being equal. So first to find PQ, you would have to find the value of variable x. To do this you would set both equations equal to each other and solve

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