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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
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%. If Rumple borrows $80 million (interest-only in perpetuity) with a cost of debt of 2%, what will the equity be worth?
Assume Rumpel operates in Utopia where corporate taxes are zero.
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