Solved: What is the relationship between the debt-equity ratio, Financial Management

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What is the relationship between the debt-equity ratio

Assignment:

Firm Value. Greenie Cleaning expects an EBIT of $35 000 every year forever. Greenie currently has no debt and its cost of equity is 14%. The firm can borrow at 8%. If the corporate tax rate is 30%, what is the value of the firm? What will the value be if Greenie converts to 50% debt? To 75% debt? To 100% debt? What does this tell you about the relationship between the debt-equity ratio and the value of the interest tax shield?

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