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Value of the Firm Assignment | Homework For You

Author:
June 8th, 2020

Ice Cream Sandwich Co. expects EBIT of $250,000 every year forever. Ice Cream Sandwich Co. currently has no debt and its cost of equity is 15%. The firm can borrow at 4%. The corporate tax rate is 37%.Homework For You

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What is the value of the firm? Enter your answer rounded to two decimal places.
Correct response: 1,050,000±0.01

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Given that the firm has a value of $1,050,000 when it is all equity, what will be the value of the firm if Ice Cream Sandwich Co. borrows $160,000 of permanent debt and uses the proceeds to buy back stock? Enter your answer rounded to two decimal places.
Correct response: 1,109,200±0.01

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Given that the firm has a value of $1,050,000 when it is all equity, how can Ice Cream Sandwich Co. maximize the value of the firm? What will be the maximum value if there are no costs to financial distress? Enter your answer rounded to two decimal places.

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