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Possible values of ebit

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Reference no: EM132056884

GTB, Inc., has a 25 percent tax rate and has $85,536,000 in assets, currently financed entirely with equity. Equity is worth $6 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below:

State Pessimistic Probability of state 0.42/ Expected EBIT in state $4.70 million

Optimistic Probability of state 0.58 / Expected EBIT in state $18.70 million

The firm is considering switching to a 25-percent-debt capital structure, and has determined that it would have to pay a 9 percent yield on perpetual debt in either event.

Reference no: EM132056884

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