Question
1-O'Connell & Co. expects its EBIT to be $74,000 every year forever.The firm can borrow at 7%, and has a tax rate of 35%.O'Connell currently
1-O'Connell & Co. expects its EBIT to be $74,000 every year forever.The firm can borrow at 7%, and has a tax rate of 35%.O'Connell currently has no debt, and its cost of equity is 13%.
a-What is the value of the firm?
b-What will the value be if the company borrows $125,000 and uses the proceeds to repurchase shares?
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Financial Markets and Institutions
Authors: Jeff Madura
12th edition
9781337515535, 1337099740, 1337515531, 978-1337099745
