Question: Question 3 (25 marks) Forward Forwarding Company Limited expects an Earnings Before Interest and Tax (EBIT) of $30,000 every year forever. The company currently has

Question 3 (25 marks) Forward Forwarding Company Limited expects an Earnings

Question 3 (25 marks) Forward Forwarding Company Limited expects an Earnings Before Interest and Tax (EBIT) of $30,000 every year forever. The company currently has no debt, and its cost of equity is 11%. Suppose the corporate tax rate is 22%. (a) Compute the current value of the company. (5 marks) (5 marks) (b) Suppose the company can borrow at 6%. What will the value of the company be if the company takes on debt equal to 50% of its unlevered value? (c) If, instead, the company plans to take on debt equal to 50% of its levered value, calculate its value. (5 marks) (d) (4 marks) Is there an easily identifiable debt-equity ratio that will maximize the value of a company? Explain. (e) (6 marks) Are certain types of industries more likely to be highly leveraged than others? Discuss and explain

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