Cede & Co. expects its EBIT to be $81,400 every year forever. The firm can borrow at

Question:

Cede & Co. expects its EBIT to be $81,400 every year forever. The firm can borrow at 7 percent. The firm currently has no debt, and its cost of equity is 14 percent. If the tax rate is 35 percent, what is the value of the firm? What will the value be if the firm borrows $145,000 and uses the proceeds to repurchase shares?

Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...