Question: Base Corp and Eastern Tech are two identical companies except for their capital structures. Neither firm pays taxes. Both firms have EBIT of $35,000 in

Base Corp and Eastern Tech are two identical companies except for their capital structures. Neither firm pays taxes. Both firms have EBIT of $35,000 in perpetuity.

Base Corp is unlevered and has 5,000 shares outstanding, each worth $20.

Eastern Tech is levered and has $25,000 in debt at a cost of debt of Rd = 12%.

How much is Base Corp worth?
How much is Eastern Tech worth?
What is Eastern Techs market value of equity?
How much would it cost to buy 30% of each company?
Is Eastern Tech more risky than Base Corp? Please explain.

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