14. 14.

M&M and taxes [LO 16.2] Cudmirrah & Sons Transport expects its EBIT to be $97 000 every year forever. The firm can borrow at 8 per cent. The company currently has no debt, and its cost of equity is 13 per cent. If the tax rate is 30 per cent, what is the value of the firm?

What will the value be if the company borrows $195 000 and uses the proceeds to repurchase shares?