You own all the equity of R.G.C. I Ltd. The company has no debt. The company’s annual cash flow is GH¢900,000 before interest and taxes. The company tax rate is 35%. You have the option to exchange 1/2 of your equity position for 5% bonds with a face value of GH¢2,000,000. 

i. What is the value of the unlevered firm? 

ii. What is the value of the levered firm? 

iii. Assuming a bankruptcy cost of GH¢8000, what is the value of the levered firm after considering bankruptcy cost?

Answer rating: 100% (QA)

solution unlevered fivm Vu EB IT 1 7 Ke 900000 10330 value O032 18000000 unleve... View the full answer