Suppose a firm expects its EBIT to be 105,000 per year forever. Assume the firm can borrow at 6.75% ad has a tax rate of 32%. If the firm has no debt and a cost of equity of 10.25%, what is the value of the firm? ($696,585) Now suppose the firm borrows $120,000 and uses the proceeds to repurchase shares. Now, what is the value of the firm? ($734,985). I understand how to do these problems, but I don't understand how the tax rate changes from 32% to 35% for the second portion of the question.