Question: Peter & Co. expects its EBIT to be $90 ,000 every year f orever. The firm can borrow at 5 percent. The company currently has

Peter & Co. expects its EBIT to be $90 ,000 every year f orever. The firm can borrow at 5 percent. The company currently has no de bt, and its cost of equity is 10 percent. If the tax rate is 20 percent, what is the value of the firm? What will the value be if the company borrows $195,000 and uses the proceeds to repurchase shares?

Useful formulas: V U = EBIT(1 T C )/ R U, V L = V U + T C D

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