Question: MM and Taxes Fields & Co. expects its EBIT to be $125,000 every year forever. The company can borrow at 7 percent. The company currently

MM and Taxes Fields & Co. expects its EBIT to be $125,000 every year forever. The company can borrow at 7 percent. The company currently has no debt, and its cost of equity is 12 percent. If the tax rate is 24 percent, what is the value of the company? What will the value be if the company borrows $205,000 and uses the proceeds to repurchase shares?

what is the cost of equity after recapitalization? What is the WACC? What are the implications for the firms capital structure decision?

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