Streiber Publishing is an all-equity firm that generates perpetual EBIT of $2.5M per year. Their after tax all equity discount rate is 20%. The corporate tax rate is 34%.
a. What is the value of Streiber?
b. If they do the debt for equity swap to include $600,000 worth of debt, what is the value of the firm?
c. Explain the difference in your answers.