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Stevenson's Bakery is currently an all-equity firm that is estimated to generate an EBIT of $150,000 per year in perpetuity. The cost of equity is
Stevenson's Bakery is currently an all-equity firm that is estimated to generate an EBIT of $150,000 per year in perpetuity. The cost of equity is 11.5% and the tax rate is 21%. The firm is planning to borrow $850000 by issuing perpetul debt with a cost of 2% per year, and paying the proceeds as a special dividend to shareholders. If the firm goes ahead with the planned capital structure restructuring, what would be the value of the firm? You can assume that the capital structure restructuring has no impact on the EBIT of the firm.
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