Question
Cede & Co. expects its EBIT to be $80,662 every year forever. The firm can borrow at 12%. Cede currently has no debt, and its
Cede & Co. expects its EBIT to be $80,662 every year forever. The firm can borrow at 12%. Cede currently has no debt, and its cost of equity is 23%. The tax rate is 34%.
What is the firm's cost of equity capital after borrowing $45,000 and using the proceeds to repurchase shares (i.e., after recapitalization)?
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Foundations of Financial Management
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen
16th edition
125927716X, 978-1259687969, 1259687961, 978-1259277160
