Question: Happy & Fun Inc. expects its EBIT to be $45,000 every year forever. Happy & Fun is currently an all-equity firm and has no debt.

Happy & Fun Inc. expects its EBIT to be $45,000 every year forever. Happy & Fun is currently an all-equity firm and has no debt. Its cost of equity is 20 percent. The tax rate is 34 percent. The company can borrow at 9 percent. What is Happy & Funs (unlevered) value currently?

A. $45,000

B. $148,500

C. $225,000

D. $330,000

E. None of the above

If possible, this one as well

Using information from the above for Happy & Fun Inc.. If Happy & Fun decides to increase its debt-equity ratio (D/E) to 0.5. what is the weighted average cost of capital (WACC) of Happy & Fun Inc. after taking on the leverage?

A. 14.79 percent B. 15.31 percent

C. 17.73 percent

D. 18.75 percent E. None of the above

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