Question
Callaway expects an EBIT of $20,000 every year in perpetuity. The firm currently has no debt, and its cost of equity is 15 percent. The
Callaway expects an EBIT of $20,000 every year in perpetuity. The firm currently has no debt, and its cost of equity is 15 percent. The tax rate is 40 percent. The firm plans to borrow money to repurchase its stock such that the debt- value ratio after the restructuring becomes 50 percent permanently. What is the firm value if the firm borrows at 8 percent?
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Building Financial Models
Authors: John Tjia
2nd Edition
0071608893, 978-0071608893
