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3 years ago

Meyer & Co. expects its EBIT to be $111,000 every year forever. The firm can borrow at 6 percent. T

Business

1 answer:

vredina [299]3 years ago

3 0

Answer:

a. $640,384.62

b. $699,134.62

Explanation:

a. The computation of the value of the firm is shown below:

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

= $111,000 × ( 1 - 0.25) ÷ 13%

= $83,250 ÷ 13%

= $640,384.62

b. The computation of the value of the firm in second case is shown below:

= Value of the firm + borrowed amount × tax rate

= $640,384.62 + $235,000 × 25%

= $640,384.62 + $58,750

= $699,134.62

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3 years ago

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