Edwards Construction currently has debt outstanding with a market value of $87,000 and a cost of 8 percent. The company has EBIT of $6,960 that is expected to continue in perpetuity. Assume there are no taxes. a-1. What is the value of the company's equity? (Do not round intermediate calculations. Leave no cell blank - be certain to enter "0" wherever required.)a-2.What is the debt-to-value ratio? (Do not round intermediate calculations and round your answer to the nearest whole number, e. g., 32.)b. What are the equity value and debt-to-value ratio if the company's growth rate is 3 percent? (Do not round intermediate calculations and round your "Debt-to-value" answer to 3 decimal places, e. g., 32.161.)c. What are the equity value and debt-to-value ratio if the company's growth rate is 7 percent? (Do not round intermediate calculations and round your "Debt-to-value" answer to 3 decimal places, e. g., 32.161.)

a-1 = $0

a-2 = 1

b-1 = $208.89

b-2 = 0.998

c-1 = $487.20

c-2 = $0.994

Explanation:

A

1) Interest = Debt value × Interest% = $87,000 × 8% = $6,960

Therefore the value of the company's equity is it's net income.

Net Income = EBIT - Interest

$6,960 - $6,960 = 0

Value of company's equity is 0.

2) The ratio of Debt to value of firm = Debt/ Value

Debt = $87,000

Value = debt + equity = $87,000 + $0 = $87,000

Therefore; Dept to value ratio is

$87,000 ÷ $87000 = 1

B

If the company's Growth Rate is 3%

1) Earnings next year EBIT = $6,960 × (1 + 3%) = $7,168.80

Since the equity value is equal to Net Income.

Net Income = EBIT - Interest

$7168.80 - $6,960 = $208.80

Therefore;

Equity Value = $208.80

2) Dept to value ratio = Dept/value

Debt = $87,000

Total Value = Debt + Equity = 87000 + 208.80 = 87208.80

Therefore; Debt to value will be

87000 ÷ 87208.80 = 0.998

C

If the company's Growth Rate is 7%

1) Earnings next year EBIT = $6,960 × (1 + 7%) = $7447.20

Since the equity value is equal to the Net income.

Net Income = EBIT - Interest = $7447.20 - $6,960 = $487.20

Therefore;

Equity Value = $487.20

2) The ratio of Dept to value = Dept/value

Debt = $87,000

Total Value = Debt + Equity = $87000 + $487.20 = $87487.20

Therefore; Debt to value ratio

$87000 ÷ $87487.20 = 0.994

16 i am positive

explanation: