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Nikolay [14]
3 years ago
13

Timmy's reading a book on Monday evening 3 pages on that day on each day after that he read thre

Mathematics
1 answer:
sergiy2304 [10]3 years ago
5 0
12 pages on thursday
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Your answer will be $150! Hope this helps! :D

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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
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$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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