Wise star company has just issued perpetual debt worth of $300,000 with an interest rate of 12%. The proceeds thereafter are used to buyback the stock. The company generates $130,000 of expected earnings in perpetuity before the deductions of interest and taxes. All the earnings of the company are distributed as dividends at the end of each year. the cost of capital is 10% and the corporate tax rate is 35%.
Find the value of the company as an unlevered firm.
Calculate the value of the company with leverage using adjusted present value method.
Find the required return on the levered equity of the firm.
Calculate the value of the company's equity using free cash flow to equity method.
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