Question: Elzear & Co. expects its EBIT to be $75,000 every year forever. The firm can borrow at 10%. Elzear currently has no debt, and its

Elzear & Co. expects its EBIT to be $75,000 every year forever. The firm can borrow at 10%. Elzear currently has no debt, and its cost of equity is 14%.

If the tax rate is 35%, what is the value of the firm?

Value of the firm$

What will the value be if the company borrows $152,000 and uses the proceeds to repurchase shares?

Value of the firm$

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