Amina and Habib Financial Company expects its EBIT to be $765,000 into perpetuity. The company however could borrow additional capital at a cost of 6.5%. Currently, A&H Financial Company has no debt. Its cost of equity currently is estimated to be 13%

A) Determine the value of the firm if its current tax rate is 23%

B) Determine the value of the firm if A&H decides to borrow $250,000 to increase its operational capabilities and to repurchase outstanding shares?

Solution (A): VU = EBIT(1-T) / R0

Solution (B): VL = VU + DTC

6.Using the same information relative to A&H Financial Company.

A)Calculate the current cost of equity relative to A&H Financial Company after the recapitalization?

B)Indicate whether the current cost of equity is greater than the prior estimated cost of equity.

C)What would be your advice to the firm based on what you identified in question B.

D)Calculate the WACC of A&H Financial Company.