Question
The Julia-n-Any Co. has expected EBIT of $600 in perpetuity, and unlevered cost of capital of 12%. Penn will raise debt with market value of
The Julia-n-Any Co. has expected EBIT of $600 in perpetuity, and unlevered cost of
capital of 12%. Penn will raise debt with market value of $1,000 and interest of 8%.
The firm will repurchase it equity using the proceeds from newly issued debt.
The tax rate is 35%. Assume no financial distress in the economy.
What is the firm's cost of Equity after the recapitalization?
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Analysis for Financial Management
Authors: Robert C. Higgins
10th edition
007803468X, 978-0078034688
