the corrado corporation expects an ebit of 5000, Finance Basics

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the corrado corporation expects an ebit of 5000

The Corrado Corporation expects an EBIT of $5000 every year forever. Corrado currently has no debt, and its cost of equity is 18 percent. Corrado can borrow at 10 percent. If the corporate tax rate is 34 percent.

a) What is the value of the firm?
a. V = CF/Rate = $50,000
b) Find what will the value be if Corrado converts to 50% debt?
c) Evaluate what will the value be if Corrado converts to 100% debt?

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