Edwards Construction currently has debt outstanding with a market value of $370,000 and a cost of 6 percent. The company has an EBIT of $22,200 that is expected to continue in perpetuity. Assume there are no taxes.
a. What is the value of the company’s equity and the debt-to-value ratio?
b. Assume that the company's growth rate is 3 percent. What is the value of the company’s equity and the debt-to-value ratio now?
c. Assume that the company's growth rate is 4 percent. What is the value of the company’s equity and the debt-to-value ratio now?