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Bavarian Brew, an unlevered firm, has an expected EBIT of $500,000. The required return on assets for the firms assets is 10%. The company has
Bavarian Brew, an unlevered firm, has an expected EBIT of $500,000. The required return on assets for the firms assets is 10%. The company has 250,000 shares outstanding. The company is considering raising $1 million in debt with a required return of 6% and would use the proceeds to repurchase outstanding stock. What is the value of Bavarian Brew after restructuring? Assume corporate taxes of 34%.
a. $5,000,000
b. $5,340,000
c. $3,300,000
d. $1,000,000
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