Analysts expect the Rumpel Felt Company to generate EBIT of $10 million annually in perpetuity (starting...

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Analysts expect the Rumpel Felt Company to generate EBIT of $10 million annually in perpetuity (starting in one year). Rumpel is all-equity financed and its stockholders require a return of 5%. If Rumple borrows $80 million (interest-only in perpetuity) with a cost of debt of 2%, what return will the stockholders require? Assume Rumpel operates in Utopia where corporate taxes are zero. Express your answer in percentage form. 5.9 X % Check Answer Analysts expect the Rumpel Felt Company to generate EBIT of $10 million annually in perpetuity (starting in one year). Rumpel is all-equity financed and its stockholders require a return of 5%. If Rumple borrows $80 million (interest-only in perpetuity) with a cost of debt of 2%, what return will the stockholders require? Assume Rumpel operates in Utopia where corporate taxes are zero. Express your answer in percentage form. 5.9 X % Check Answer

Answer rating: 100% (QA)

SOLUTION Since Rumpel Felt Company is allequity financed the 10 million EBIT represents the earnings ... View the full answer