Question: Meyer & Co. expects its EBIT to be $89,000 every year forever. The firm can borrow at 5 percent. Meyer currently has no debt, and

Meyer & Co. expects its EBIT to be $89,000 every year forever. The firm can borrow at 5 percent. Meyer currently has no debt, and its cost of equity is 8 percent and the tax rate is 35 percent. The company borrows $102,000 and uses the proceeds to repurchase shares.

a. What is the cost of equity after recapitalization?

b. What is the WACC?

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