## What is the present value of the tax shield?3 What is the size of debt?

Assuming that there is an unlevered firm and a levered firm. The basic information is given by the following table.

Table1: Information of the firms

 Unlevered firm Levered firm EBIT 10000 10000 Interest 0 3200 Taxable income Tax (tax rate: 34%) Net income CFFA

Assuming that cost of debt =8%; unlevered cost of capital =10%; systematic risk of the asset is 1.5

1 Fill in the blanks

2 What is the present value of the tax shield?3 What is the size of debt?

4 Calculate the following values:
a) value of unlevered firm; b) value of the levered firm; c) equity value; d) Cost of equity; e) cost of capital; f) systematic risk of the equity

5 Suppose that the firm changes its capital structure so that the debt-to-equity ratio is 1.0, then recalculate the systematic risk of the equity

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Alper is the owner of Cube-XYZ, a perfect cube-shaped planet, and builds a mansion on one vertex of the cube, and distinct houses on the seven other vertices. Houses are….