M&M and Taxes Bruce & Co, expects its EBIT to be $85,000 every year forever. The firm

Question:

M&M and Taxes Bruce & Co, expects its EBIT to be $85,000 every year forever. The firm can borrow at 11 percent. Bruce currently has no debt, and its cost of equity is 18 percent. If the tax rate is 35 percent, what is the value of the firm? What will the value be if Bruce 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...