LP Bean Company, an all equity company, has an EBIT of $1,200,000 that it expects it...

LP Bean Company, an all equity company, has an EBIT of $1,200,000 that it expects it will earn forever, and it pays all of its earnings as dividends to shareholders (i.e., no growth). The firm has a corporate tax rate of 45% and has an un-levered beta of 1.25. In the market, you observe that Government T-bills are being sold to yield 3% and the market risk premium is 6%. Assume a world of taxes and a cost for the risk of default.

a) Calculate the value of the firm.
b) Calculate the WACC for the firm.
c) What is the value of the firm if the firm issues $1,500,000 of bonds at par with a coupon rate of 5%? The beta for the equity of the leveraged firm is 1.6.

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LP Bean Company, an all equity company, has an EBIT of $1,200,000 that it expects it...

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