Question: CASE 1 (25 points) A corporation has EBIT of 126.58 and Debt of 500. You were informed that the cost of debt is 10% and

CASE 1 (25 points) A corporation has EBIT of 126.58 and

CASE 1 (25 points) A corporation has EBIT of 126.58 and Debt of 500. You were informed that the cost of debt is 10% and unlevered cost of capital is 20%. Tax rate is 21%. Instructions: Answer the following questions. Show your solutions. 1. What is the value of equity? Hint: first find Vu (value of the firm with no debt), second VL (value of the firm with debt), and lastly E (value of Equity of a levered firm). (10 points) 2. What is the cost of equity? (5 points) 3. What is the WACC? (5 points) 4. Is debt financing advantageous? (5 points) CASE 1 (25 points) A corporation has EBIT of 126.58 and Debt of 500. You were informed that the cost of debt is 10% and unlevered cost of capital is 20%. Tax rate is 21%. Instructions: Answer the following questions. Show your solutions. 1. What is the value of equity? Hint: first find Vu (value of the firm with no debt), second VL (value of the firm with debt), and lastly E (value of Equity of a levered firm). (10 points) 2. What is the cost of equity? (5 points) 3. What is the WACC? (5 points) 4. Is debt financing advantageous? (5 points)

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