A company just issued $110000 of perpetual 9% debt and used the proceeds to repurchase stock. The company expects to generate 100000 of EBIT in perpetuity. The company distributes all its earnings as dividends at the end of each year. The firm's unlevered cost of capital is 13% and the tax rate is 15%. Use APV method to calculate the value of the company with leverage.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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A company just issued $110000 of perpetual 9% debt and used the proceeds to
repurchase stock. The company expects to generate 100000 of EBIT in perpetuity.
The company distributes all its earnings as dividends at the end of each year. The
firm's unlevered cost of capital is 13% and the tax rate is 15%. Use APV method to
calculate the value of the company with leverage.
Transcribed Image Text:A company just issued $110000 of perpetual 9% debt and used the proceeds to repurchase stock. The company expects to generate 100000 of EBIT in perpetuity. The company distributes all its earnings as dividends at the end of each year. The firm's unlevered cost of capital is 13% and the tax rate is 15%. Use APV method to calculate the value of the company with leverage.
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