Problemoconnell amp co expects its ebit to be 91000 every, Ask an Expert

Accounting

Problem:

O'Connell & Co. expects its EBIT to be $91,000 every year forever. The firm can borrow at 4 percent. O'Connell currently has no debt, and its cost of equity is 11 percent.

Requirement:

Question 1: If the tax rate is 35 percent, what is the value of the firm?

Question 2: What will the value be if the company borrows $136,000 and uses the proceeds to repurchase shares?

Note: Explain all calculation and formulas.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91173151

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