Question: Where do I begin? 5. Go-Blue Systems Inc. has perpetual cash EBIT of $300 mil per year. The firm's tax rate is 40% and has
Where do I begin?
5. Go-Blue Systems Inc. has perpetual cash EBIT of $300 mil per year. The firm's tax rate is 40% and has an unlevered equity beta (e) equal to 1.25. The market risk premium is 6.5%; risk free rate (rf) is 4%. Go-Blue has $750 mil in debt with a cost of debt equal to 7.08.(23 pts) a. If Go-Blue were unlevered, what would be its value assuming interest expense is NOT tax deductible? (5 pts) b. What is the levered value of Go-Blue and the value of the equity if interest expense is NOT tax deductible? (5 pts) c. What is the required return on Go-Blue's levered equity assuming interest expense is NOT tax deductible? (3 pts)
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