Question: Problem 16-14 MM and Taxes OConnell & Co. expects its EBIT to be $89,000 every year forever. The firm can borrow at 5 percent. OConnell

Problem 16-14 MM and Taxes

OConnell & Co. expects its EBIT to be $89,000 every year forever. The firm can borrow at 5 percent. OConnell currently has no debt, and its cost of equity is 10 percent.

If the tax rate is 35 percent, what is the value of the firm? (Round your answer to 2 decimal places. (e.g., 32.16))

Value of the firm

What will the value be if the company borrows $102,000 and uses the proceeds to repurchase shares? (Round your answer to 2 decimal places. (e.g., 32.16))

Value of the firm

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