Wayne Enterprises has historically been an all-equity firm. Management expects EBIT to be $1.3B in perpetuity starting one year from now. The cost of equity for Wayne Enterprises is 8.5% and the tax rate is 30%. Suppose that Wayne Enterprises borrows $5.047B and uses the funds to repurchase shares. What is the value of the firm if the present value of financial distress costs is $0.5B?

Responses

a.$10.7B

b. $11.7B

c. $13.7B

d. $12.7B