Problemoconnell amp co expects its ebit to be 74000 every, Ask an Expert

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Problem:

O'Connell & Co. expects its EBIT to be $74,000 every year forever. The firm can borrow at 7 percent. O'Connell currently has no debt, and its cost of equity is 12 percent and the tax rate is 35 percent. The company borrows $125,000 and uses the proceeds to repurchase shares.

Required:

Question: What is the cost of equity after recapitalization? What is the WACC?

Note: Provide support for your rationale.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91163048

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