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Barrack Ltd. expects its EBIT to be $80,000 every year forever. The firm can borrow at 7%. It has no debt and the cost of

Barrack Ltd. expects its EBIT to be $80,000 every year forever. The firm can borrow

at 7%. It has no debt and the cost of equity is 10%.

a) If the tax rate is 30%, what is thevalue of the firm?

b) What will the value be if it borrows $100,000 and repurchase the

outstanding shares

c) and the cost of equity, WACC after recapitalization?

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