Cede & Co. can borrow at 9 percent. Cede currently has no debt, and the cost of

Question:

Cede & Co. can borrow at 9 percent. Cede currently has no debt, and the cost of equity is 16 percent. The current value of the firm is $540,000. What will the value be if Cede borrows $110,000 and uses the proceeds to repurchase shares? The corporate tax rate is 35 percent.

Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...