EBITDA = $83000
Since the firm has no debt
EBT = $83000
Tax Rate = 35%
Tax amount = 35% * 83000 = 29050
Earnings after tax = $83000 - $29050 = $53950
A) Value of the firm = Earnings after tax / cost of equity
= 53950 / 13%
= $415000
B) Since the firm is all equity
Equity of the firm = $41500
Debt infused = $125000
Borrowing cost = 8%
EBITDA = $83000
Interest on debt = 125000 * 8% = $10000
EBT = $83000 - $10000 = $73000
Tax = 73000 * 35% = $25550
Earning after tax = $47450
Since the funds are used to repurchase equity ,
New equity of the firm = $415000 - $125000 = $290000
Debt = $125000
Value of the levered firm = Equity + liabilities = $290000 + $125000 = $415000
C) The value of equity of the levered firm = Earning After Tax / Cost of equity
= 47450 / 13%
= $365000
Value of equity of the levered firm is $365000
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