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What is the value of equity for corporation

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A corporation has EBIT of €126.58 and Debt of €500. You were informed that the cost of debt is 10% and unlevered cost of capital is 20%. Tax rate is 21%.

Problem 1. What is the value of equity? Hint: first find VU (value of the firm with no debt), second VL (value of the firm with debt), and lastly E (value of Equity of a levered firm).

Problem 2. What is the cost of equity?

Problem 3. What is the WACC?

Problem 4. Is debt financing advantageous?

Reference no: EM132818287

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