What is the value of the unlevered firm

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Reference no: EM133377400

Question: Given the information in Tables B and C below related to an investment being considered:

Table B

Unlevered cost of equity	10%
Borrowing rate	6%
Tax rate	30%
Current debt outstanding	$300.00

Table C

	Years
	1	2	3	4 and up
Firm free cash flows	$150.00	$170.00	$200.00	210.00
Interest-bearing debt	300.00	250.00	200.00	150.00
Interest expense	25	20	15	10
Interest tax savings	7.5	6.0	4.5	3

Question 1: What is the value of the unlevered firm, assuming that its free cash flows for Year 5 and beyond are equal to the Year 4 free cash flow (consider planning period to be 3 years)?

Question 2. What is the value of the firm's interest tax savings, assuming that they remain constant for Year 4 and beyond?

Question 3. What is the value of the levered firm?

Question 4. What is the value of the levered firm's equity (assuming that the firm's debt is equal to its book value)?

Reference no: EM133377400

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