Question: XTW Corp. expects its EBIT to be $ 1 2 0 , 0 0 0 every year forever. The firm can borrow at 1 0

XTW Corp. expects its EBIT to be $120,000 every year forever. The firm can borrow
at 10 percent. Bruce currently has no debt, and its cost of equity is 18 percent. The tax
rate is 25 percent. What will the value of XTW Corp. be if the firm borrows $47,000 and
uses the loan proceeds to repurchase shares?

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