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You are looking at borrowing $250,000 to open your own Subway franchise at an interest rate of 8% per year. You expect the restaurant to
You are looking at borrowing $250,000 to open your own Subway franchise at an interest rate of 8% per year. You expect the restaurant to generate pre-tax cash flows of $50,000 each year, and your tax rate is going to be 20%. The cost of equity is 10%. What would be the value of your firm without debt, and how much would debt increase its value?
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