Problem:
New Schools, Inc. expects an EBIT of $7000 every year forever. The firm currently has no debt, and its cost of equity is 17%. The firm can borrow at 8% and the corporate tax rate is 34%.
Required:
What will the value of the firm be if it converts to 50% debt?
A. $29,871.17
B. $31,796.47
C. $32,407.16
D. $34,552.08
E. $37,119.30
Note: Please provide through step by step calculations.