Question: Roxy Broadcasting has an annual EBIT of 3 500 000 and a
Roxy Broadcasting has an annual EBIT of $3,500,000 and a WACC of 14%. The current tax rate is 40%. Roxy will have the same EBIT forever. The company currently has debt of $6,250,000 with a cost of debt of 14%. Roxy will sell $12,500,000 more of debt and retire stock with the proceeds. What is the value of equity in the higher levered firm? What is the government’s value in the higher levered firm?
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