An unlevered firm has a cost of capital of 16 percent and earnings before interest and taxes of $225,000

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An unlevered firm has a cost of capital of 16 percent and earnings before interest and

taxes of $225,000. A levered firm with the same operations and assets has both a book value

and a face value of debt of $850,000 with an 8 percent annual coupon. Assume no taxes and no bankruptcy.

 

Part 1) What is the Value of the levered Firm?

Part 2) What is the value of equity?