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Analysts expect the Rumpel Felt Company to generate EBIT of $10 million annually in perpetuity (starting in one year). Rumpel is all-equity financed and its
Analysts expect the Rumpel Felt Company to generate EBIT of $10 million annually in perpetuity (starting in one year). Rumpel is all-equity financed and its stockholders require a return of 5%. The value of Rumpel is $200 million. If Rumple borrows $80 million with a cost of debt of 2%, what will the company's WACC be? (Assume that the borrowed money is used to repurchase shares and Rumpel operates in Utopia where corporate taxes are zero.) 5% O 7% 8% 6%
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