Question: B&H Co . expects its EBIT to be $ 5 0 , 0 0 0 every year forever. The firm can borrow at 6 %

B&H Co. expects its EBIT to be $50,000 every year forever. The firm can borrow at 6% interest rate.
B&H currently has no debt, and its cost of equity is 8%. The tax rate is 0%.
Required
1.What is the value of B&H?
2.Determine the cost of equity when management decides to transform 40% of equity into debt.
3.Explain the adjustment of the cost of equity
Now assume that B&H operates in a world with corporate taxes (20%)
Required
Determine value of the company (100% equity)
2.Determine the value of the company after refinancing with 2mln debt. Debt will be used to
repurchase shares.
3.Determine the cost of equity when management decides to transform 40% of equity into debt.
4.Calculate the wacc after refinancing|
B&H Co. expects its EBIT to be $50,000 every year forever.

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