In Problem 14, what is the cost of equity after recapitalization? What is the WACC? What are the implications for the firm’s capital structure decision? In problem 14 Cede & Co. expects its EBIT to be $81,400 every year forever. The firm can borrow at 7 percent. The firm currently has no debt, and its cost of equity is 14

Chapter 14, Questions and Problems #15

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In Problem 14, what is the cost of equity after recapitalization? What is the WACC? What are the implications for the firm’s capital structure decision?

In problem 14

Cede & Co. expects its EBIT to be $81,400 every year forever. The firm can borrow at 7 percent. The firm currently has no debt, and its cost of equity is 14 percent. If the tax rate is 35 percent, what is the value of the firm? What will the value be if the firm borrows $145,000 and uses the proceeds to repurchase shares?

Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a...
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...
Related Book For answer-question

Corporate Finance Core Principles and Applications

5th edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan

ISBN: 978-1259289903