Question: Sea Crest Corporation which is an all equity firm has an
Sea Crest Corporation, which is an all-equity firm has an annual EBIT of $2,540,000, and a WACC of 15%. The current tax rate is 35%. Sea Crest Corp. will have the same EBIT forever. If the company sells debt worth $3,250,000 with a cost of debt of 10%, what is the value of equity in the unlevered and levered firm? What is the value of debt in the levered firm? What is the government’s value in the unlevered and levered firm?
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