Question
Lets Party Inc. expects its EBIT to be $50,000 every year forever. Lets Party is currently an all-equity firm and has no debt. Its cost
Lets Party Inc. expects its EBIT to be $50,000 every year forever. Lets Party is currently an all-equity firm and has no debt. Its cost of equity is 20 percent. The company faces a tax rate of 40 percent. The company can borrow at 8 percent. What is Lets Party (unlevered) value currently?
If Lets Party decides to increase its debt-equity ratio (D/E) to 0.5. what is the weighted average cost of capital (WACC) of Lets Party after taking on the leverage?
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ISE Essentials Of Investments
Authors: Zvi Bodie, Alex Kane, Alan Marcus
12th International Edition
1265450099, 9781265450090
