Suppose an unlevered firm issues $1400 in perpetual debt at a cost of debt of 9.4 percent.  If the corporate tax rate is 18 percent, what is the change in the firm's value?  Ignore financial distress costs.

 

Enter the answer rounded to two decimal places

 

2. A firm's cost of unlevered equity is 12.0 percent and its pretax cost of debt is 6.0 percent.  The firm has a debt-equity ratio of 0.4 and there are no taxes.  Calculate the firm's cost of levered equity.

Answer rating: 100% (QA)

Change in firm value can be computed as Value of debt issued Corporate tax rate Subs... View the full answer