FIN 612 - Connor Electric currently has debt outstanding with a market value

Connor Electric currently has debt outstanding with a market value of $70,000 and a cost of 10 percent. The company has EBIT of $7,000 that is expected to continue in perpetuity. Assume there are no taxes.

Part I - What is the value of the company's equity?

A. $50,000
B. $100,000
C. $0

D. $1,000,000
E. Impossible to calculate with information given.

Part II - What is the debt-to-value ratio?

A. 1.0
B. 1.9
C. 0.5
D. 1.26
E. Impossible to calculate with information given.

Part III - What are the equity value and debt-to-value ratio if the company's 6 growth rate is 5 percent?

A. 0.909
B. 0.954
C. 0.891
D. 0.526
E. Impossible to calculate with information given.

Part IV - What are the equity value and debt-to-value ratio if the company's growth rate is 9 percent?

A. 0.526
B. 0.909
C. 0.641
D. 1.263
E. Impossible to calculate with information given.