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NO EXCEL SOLUTIONS Please use the following information to answer the next TWO questions. Farmhouse Fudge Inc, expects an EBIT of $220,000 every year forever.
NO EXCEL SOLUTIONS Please use the following information to answer the next TWO questions. Farmhouse Fudge Inc, expects an EBIT of $220,000 every year forever. The firm currently has no debt and its cost of equity is 20%. The firm is thinking of borrowing $350,000 at 9% and buying back shares. The corporate tax rate is 40%. 23. What would be the value of the levered firm? A) $1,100,000 B) $691,500 C) $1,240,000 D) $800,000 E) $1,450,000 24. What would be the firm's cost of equity and WACC, respectively, after the recapitalization? A) 22.89%;15.84% B) 33.53%;21.23% C) 25.13%;16.50% D) 31.98%;20.35% E) 23.22%;12.87%
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