Since EQT is an all equity firm, its earnings are $15,000. Thus firm value is the equity value, which is the discounted future dividends, VEQT =EEQT =$15,000/10% =$150,000. Since there are 2,000 share outstanding, price of EQT is: PEQT = $150,000/2,000=$75 per share. DBT is a leveled company. Since DBT and EQT are exactly the same except for their capital structure. We can consider DBT as the leveled company of EQT. According to MMI, when there is no tax, the value of an all equity firm should be equal to the value of the leveled company. Therefore, we have VDBT =VEQT = $150,000.  What is the total equity value?

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Answer To find the total equity value we need to consider both EQT and DBT For ... View the full answer