The beta of the equity of ABC Company is 1.67 and ABC has a debt-to-equity ratio of
0.67 calculated at market values. The debt is risk-free and perpetual. ABC generates
annual EBIT of $100 and has 100 shares of common stock outstanding. The expected
return on the market portfolio is 15% and the risk-free interest rate is 5%. The corporate
tax rate is 30%. Assume that personal taxes and bankruptcy costs are not relevent.
Considering an expansion project that will require an initial investment of
133.33. This expansion project is estimated to increase the firm's annual EBIT by
20%. How do I determine the new value of ABC if it undertakes the investment and
finances it 100% with debt, permanently altering its leverage. Also how can I find the new
value of the equity and the new share price?