Folgers Air Transport (FAT) is currently an unlevered firm. It is
considering a capital restructuring to allow $200 in perpetual debt. The
company expects to generate perpetual EBIT of $151.52. (Assume that
depreciation equals capital expenditures and there are no additions to
working capital.) The corporate tax rate is 34% and the pre-tax cost of
debt will be 10%. Unlevered firms in the same industry have a cost of
equity capital of 20%. Compute the value of FAT after the restructuring.
Ignore any costs of financial distress and assume that interest tax
shields are discounted at the pre-tax cost of debt.