Keyboard Chiropractic Clinics produces $300,000 of cash flow each year The firm has no debt outstanding, and its cost of equity capital is 25 percent The firms management would like to repurchase $600,000 of its equity by borrowing a similar amount at a rate of 8 percent per year If we assume that ...

Using the 25 percent cost of equity capital the value of the firm ...

Keyboard Chiropractic Clinics produces $300,000 of cash flow each year. The firm has no debt outstanding, and

Question:

Keyboard Chiropractic Clinics produces $300,000 of cash flow each year. The firm has no debt outstanding, and its capital is 25 percent. The firm’s management would like to repurchase $600,000 of its equity by borrowing a similar amount at a rate of 8 percent per year. If we assume that the debt will be perpetual, find the capital for Keyboard after it changes its capital structure. Assume that Modigliani and Miller Proposition 1 holds.

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...