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Unformatted text preview: EPS equal to each other and solve for EBIT. The breakeven EBIT is: EBIT/240,000 = [EBIT .10($3,100,000)]/160,000 EBIT = $930,000 16-10. With no taxes, the value of an unlevered firm is the interest rate divided by the unlevered cost of equity, so: V = EBIT/WACC $43,000,000 = EBIT/.11 EBIT = .11($43,000,000) EBIT = $4,730,000 16-18. With no debt, we are finding the value of an unlevered firm, so: V = EBIT(1 t C )/R V = $15,000(1 .35)/.17 V = $57,352.94 With debt, we simply need to use the equation for the value of a levered firm. With 50 percent debt, one-half of the firm value is debt, so the value of the levered firm is: V = V U + t C B V = $57,352.94 + .35($57,352.94/2) V = $67,389.71 And with 100 percent debt, the value of the firm is: V = V U + t C B V = $57,352.94 + .35($57,352.94) V = $77,426.47 Sources: http://www.mhhe.com/rwj http://tychousa.umuc.edu...
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- Fall '09