Camouflage Corporation expects an EBIT of $26,850 every yearforever. The company currently has no debt,...

Camouflage Corporation expects an EBIT of $26,850 every year forever. The company currently has no debt, and its cost of equity is 14 percent. The tax rate is 35 percent.

What is the current value of the company?

Suppose the company can borrow at 8 percent. What will the value of the company be if it takes on debt equal to 50 percent of its unlevered value? What if it takes on debt equal to 100 percent of its unlevered value?

What will the value of the company be if it takes on debt equal to 50 percent of its levered value? What if the company takes on debt equal to 100 percent of its levered value? please show in EXCEL

Solutions

Expert Solution

Formulas Used:;-

EBIT	26850
Cost of Equity	0.14
Tax Rate	0.35
Value of the company	=B1*(1-B3)/B2

Takes Debt 50% of its unlevered value	=B4+(B450%B3)
Takes Debt 100% of it Unlevered Value	=B4+(B4*B3)

Takes Debt 50% of its levered value	=B4/(1-B3*50%)
Takes Debt 100% of its levered value	=B4/(1-B3)

jeff jeffy answered 2 years ago

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