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Lazare Corporation expects an EBIT of $17,100 every year forever. Lazare currently has no debt, and its cost of equity is 10 percent. The corporate
Lazare Corporation expects an EBIT of $17,100 every year forever. Lazare currently has no debt, and its cost of equity is 10 percent. The corporate tax rate is 35 percent.
a) What is the current value of the company?
b) Suppose the company can borrow at 7 percent. What will the value of the firm be if the company takes on debt equal to $55,575?
c) Assuming no bankruptcy costs and that the Lazare Copr. can borrow at 7 percent, what would its optimal capital structure look like?
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