Question
Total Manufacturing has an expected EBIT of $40,000 per year in perpetuity and a tax rate of 20%. The firm currently has no debt. Its
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Total Manufacturing has an expected EBIT of $40,000 per year in perpetuity and a tax rate of 20%. The firm currently has no debt. Its cost of debt is 8% and unlevered cost of capital is 14%. If the firm changes its capital structure by borrowing $120,000 to repurchase the same amount of equity, what would be the firm's value under the new capital structure?
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Financial Markets and Institutions
Authors: Frederic S. Mishkin, Stanley G. Eakins
8th edition
013342362X, 978-0133423624
