Question: Mitch, Cam & Co. expects its EBIT to be $150,000 every year forever. The firm can borrow at 8%. The company currently has no debt,

  1. Mitch, Cam & Co. expects its EBIT to be $150,000 every year forever. The firm can borrow at 8%. The company currently has no debt, and its cost of equity is 13%. If the tax rate is 24 %, what is the value of the firm.

    $567,077

    $876,923

    $130,000

    $240,000

  2. Referring to the information in (1), what will be the value if Mitch, Cam & Co. borrows $200,000 and uses the proceeds to repurchase shares?

    $480,000

    $924,923

    $632,615

    $780,973

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