In Problem 14, what is the cost of equity after recapitalization? What is the WACC? What are

Question:

In Problem 14, what is the cost of equity after recapitalization? What is the WACC? What are the implications for the firm’s capital structure decision?

Data From Problem 14

Cede & Co. expects its EBIT to be $163,000 every year forever. The company can borrow at 8 percent. The company currently has no debt and its cost of equity is 15 percent. If the tax rate is 23 percent, what is the value of the company? What will the value be if the company borrows $185,000 and uses the proceeds to repurchase shares?

Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a... 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...

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