# Please provide solution in excel showing all the formulas. a) Consider a firm with EBIT of \$125,000, debt of \$500,000.

Please provide solution in excel showing all the formulas.

a)

Consider a firm with EBIT of \$125,000, debt of \$500,000. If the rd is 12%, the rsU= 16% and the corporate tax rate is 40%, then what is the value of the firm (VL) according to MM with corporate taxes?

b)

The market value of Firm L’s debt is \$200,000 and its yield is 10%. The firm’s equity has a market value of \$300,000, its earnings are growing at a 5% rate, and its tax rate is 40%. A similar firm with no debt has a cost of equity of 14%. Under the MM extension with growth, what would Firm L’s total value be if it had no debt?

c)

The common stock of Southern Airlines currently sells for \$33, and its 8% convertible debentures (issued at par, or \$1,000) sell for \$850. Each debenture can be converted into 27 shares of common stock at any time before 2025. What is the conversion value of the bond?

Q1. The value of the firm (VL) according to MM with corporate taxes Formula: VL = Vu +TDTD =TaX Shield = DT*rdVU=S = EBIT(1-T)/rsUTax rateDebtEBITrsUrd 0.45000001250000.160.12 VuTD…

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