What is levered value of go-blue and the value of the equity

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Reference no: EM132208260

Question - Go-Blue Systems Inc. has perpetual cash EBIT of $300 mil per year. The firm's tax rate is 40% and has an unlevered equity beta (βe) equal to 1.25. The market risk premium is 6.5%; risk free rate (rf) is 4%. Go-Blue has $750 mil in debt with a cost of debt equal to 7.0%.

a. If Go-Blue were unlevered, what would be its value assuming interest expense is NOT tax deductible?

b. What is the levered value of Go-Blue and the value of the equity if interest expense is NOT tax deductible?

c. What is the required return on Go-Blue's levered equity assuming interest expense is NOT tax deductible?
For the remaining questions, assume interest expense is tax deductible.

d. What is the value of the levered version of Go-Blue and the value of its levered equity?

e. What is the return on Go-Blue's levered equity?

f. What is Go-Blue's WACC?

g. Using the WACC from part (f) above, show how you arrived at the total value of the levered firm (VL) in part (d).

Reference no: EM132208260

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