Strider Publishing Company, an all-equity firm, expects perpetual earnings before interest and taxes (EBIT) of $2.5 million per year. Strider's after-tax, all-equity discount rate is 20 percent. The firm is subject to a 34 percent corporate tax rate.

What is the value of Strider Publishing?

If Strider issues $600,000 of debt and uses the proceeds to repurchase stock, what will the value of the firm be?

Explain the difference in your answers to (a) and (b).