we have been provided with the infromation as follow

Cavo Corporation expects an EBIT of $26,500 every year forever

cost of equity is 15 percent.

The corporate tax rate is 35 percent.

Now we need to calculate value of the firm be if the company takes on debt equal to 40 percent of its levered value?

With no debt, we are finding the value of an unlevered firm, so:

V = EBIT(1 – tC)/RU

V = $ 26,500(1 – .35)/.15

V = $ 114,833.33

VL=VU+tCB

With debt being 40 percent of the value of the levered firm,Dmust equal (.40)VL,

so:VL=VU+T[(.40)VL]VL

= $114,833.33+ .35(.40)(VL)VL

= $ 133527.13