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Meyer Co. expects EBIT to be $83,000 a year in perpetuity. The firm can borrow at 8%; has no debt and its cost of equity

Meyer Co. expects EBIT to be $83,000 a year in perpetuity. The firm can borrow

at 8%; has no debt and its cost of equity capital is 13%. If the tax rate is 35%,

what is the value of the firm? What will be value of the firm be if it borrows

$125,000 and uses the proceeds to repurchase shares?

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