Value of aggie as an unlevered firm, Accounting Basics

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Value of aggie as an unlevered firm

Problem:

The Aggie Company has EBIT of $60,000 and market value debt of $100,000 with a 9% coupon rate. The cost of equity for an all equity firm is 14%. Aggie has a 40% corporate tax rate. Investors face a 25% tax rate on debt receipts and a 20% rate on equity.

Required:

Question 1: What is the value of Aggie as an unlevered firm?

Question 2: What is the Miller leverage tax shield value for Aggie?

Question 3: What is the value of Aggie as a levered firm?

Note: Show supporting computations in good form.

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Accounting Basics: Value of aggie as an unlevered firm

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Accounting Basics: Value of aggie as an unlevered firm

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