Question
The firm originally is 100% financed by equity (Unlevered firm). The EBIT for the firm is $20,000. The cost of capital for this unlevered firm
The firm originally is 100% financed by equity (Unlevered firm). The EBIT for the firm is $20,000. The cost of capital for this unlevered firm is 10%. The tax rate is 40%. Systematic risk of the asset is 1.5 Now assuming that the firm issues $60,000 debt to buy back some shares, and the debts are traded at par value. Assuming that the cost of debt =8%. What is the value of the levered firm?
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Fixed Income Securities Tools For Todays Markets
Authors: Bruce Tuckman, Angel Serrat
3rd Edition
0470891696, 978-0470891698
