Frederick Co expects its EBIT to be $92,000 every year forever The firm can borrow at 9 Frederick currently has no debt, and its cost of equity is 15 If the tax rate is 35 , a What is the value of the firm b What will the value be if the company borrows $60,000 and uses the proceeds to repurchase s...

a Computation of the value of the firm The value of the unlevered firm is V ...

Frederick & Co. expects its EBIT to be $92,000 every year forever. The firm can borrow at

Question:

Frederick & Co. expects its EBIT to be $92,000 every year forever. The firm can borrow at 9%. Frederick currently has no debt, and its is 15%. If the tax rate is 35%,
a. What is the value of the firm?
b. What will the value be if the company borrows $60,000 and uses the proceeds to repurchase shares?

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...