In: Finance
Capital Structure and Growth
Edwards Construction currently has debt outstanding with a market
value of $95,000 and a cost of 9 percent. The company has EBIT of
$8,550 that is expected to continue in perpetuity. Assume there are
no taxes.
a. What is the value of the company's equity? What is the
debt-to-value ratio?
b. What are the equity value and debt-to-value ratio if the
company's growth rate is 3 percent?
c. What are the equity value and debt-to-value ratio if the
company's growth rate is 7 percent?
Show all the steps and don't round off calculations.