August Partners will have an EBIT this coming year of $20 million. It will also spend $4 million on capital expenditures. Increase in net working…

August Partners will have an EBIT this coming year of $20 million. It will also spend $4 million on capital expenditures. Increase in net working capital is expected to be $1.5 million and depreciation expenses are expected to be $3 million. August Partners is an all-equity firm with a corporate tax rate of 40%. The current risk free rate is 3%, market risk premium is 4% and August’s beta is 1.4.a)If August is expected to grow at 5% per year, what is the market value of equity today?b)If August can borrow at 8% interest rate, how much can the company borrow now and still have non-negative net income this coming year?c)If August borrowed an amount of debt such as interest paid is equal to 30% of EBIT, what will be the value of August with leverage?

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