Question: NEED HELP WITH LAST PART (Number 3) 1. MacKinnon Co. currently has EBIT of $31,000 and is all equity financed. EBIT is expected to stay

NEED HELP WITH LAST PART (Number 3)

1. MacKinnon Co. currently has EBIT of $31,000 and is all equity financed. EBIT is expected to stay at this level indefinitely. The firm pays corporate taxes equal to 38% of taxable income. The cost of equity for this firm is 11%.

What is the market value of the firm? ANS: 174727.27

2. Suppose the firm has a value of $174,727.27 when it is all equity financed. Now assume the firm issues $72,000 of debt paying interest of 6% per year and uses the proceeds to retire equity. The debt is expected to be permanent.

What will be the value of the firm? ANS: 179047

What will be the value of the equity after the debt issue? ANS: 107047

3. Suppose that with the $72,000 of debt the firm has a value of $202,087.27 and a value of equity of $130,087.27.

What will be the expected rate of return on the equity?

Enter your answer as a percentage rounded to two decimal places.

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