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ABC Company expects its EBIT to be $ 1 2 5 , 0 0 0 every year forever. The firm can borrow at 7 %

ABC Company expects its EBIT to be $

125, 000

every year forever. The firm can borrow at

7 % .

The company currently has no debt, and its cost of equity is

12 % .

If the tax rate is

24 %,

what is the value of the firm? What will the value be if the company borrows $

205, 000

and uses the proceeds to purchase shares? Do not use Excel.

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