Description
use formula sheet and show And show the calculation steps.
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Explanation & Answer

Find the solution for Problem 1-3 attached herewith, so yo can submit the assignment.. Will finish 4 & 5 and upload them in sometime..
(WE) = Weight of Equity
(WD)= Weight of Debt
(VU)= Value of Unlevered Firm
(VL) = Value of Levered Firm
(RE)= Cost of Equity
(RD)= Cost of Debt
(RU)= Cost of Unlevered Equity
Answer 1
(RU) = 13.5%,
VU
VL
EBIT = 149,000,
=
EBIT (1-Tax) / RU
=
149,000 (1 – 35%) / 13.5%
=
96,850 / 13.5%
=
$717,407
=
VU+ (Debt)(Tax Rate)
=
717,407 + (265,000 x 35%)
=
717,407 + 92,750
=
810,157
Equity =
RE
(RD) = 9%,
Tax rate (t) = 35%
VL
-
Debt
=
810,157
-
265,000
=
545,157
=
RU + (RU – RD) x (D/E) x (1 – T)
=
13.5% + (13.5% - 9%) x (265,000 / 545,157) x (1 – 35%)
=
13.5% + (4.5% x 0.486 x 0.65)
=
13.5% + 1.42%
=
...
