Question
Elzear & Co. expects its EBIT to be $74,000 every year forever. The firm can borrow at 7 percent. Elzear currently has no debt, and
Elzear & Co. expects its EBIT to be $74,000 every year forever. The firm can borrow at 7 percent. Elzear currently has no debt, and its cost of equity is 12 percent.
If the tax rate is 35 percent, what will the value be if the company borrows $125,000 and uses the proceeds to repurchase shares?
| A.$455,583.33 |
| B.$400,833.33 |
| C.$450,833.33 |
| D.$444,583.33 |
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A First Course in Quantitative Finance
Authors: Thomas Mazzoni
1st edition
9781108411431, 978-1108419574
