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3. MM and Taxes Bruce & Co. expects its EBIT to be S145,000 every year forever. The company can borrow at 8 percent. The company

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3. MM and Taxes Bruce & Co. expects its EBIT to be S145,000 every year forever. The company can borrow at 8 percent. The company currently has no debt, and its cost of equity is 14 percent. The tax rate is 35 percent. a. What is the value of the company (i.e, Vu)? b. What will the value be if the company borrows $135,000 and uses the proceeds to repurchase shares (i.c. What is the cost of equity after recapitalization? What is the WACC? What are the implications for the firm's capital structure decision? c. d

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