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Meyer & Co. expects its EBIT to be $115,000 every year forever. The firm can borrow at 7 percent. The companycurrently has no debt, and

Meyer & Co. expects its EBIT to be $115,000 every year forever. The firm can borrow at 7 percent. The companycurrently has no debt, and its cost of equity is 13 percent.

a. If the tax rate is 24 percent, what is the value of the firm?

b.What will the value be if the company borrows $255,000 and uses the proceeds to repurchase shares?

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