Fields & Company expects its EBIT to be $91,000 every year forever. The firm can borrow at 7 percent. The company currently has no debt, and its cost of equity Is 12 percent and the tax rate is 22 percent. The company borrows $150,000 and uses the proceeds to repurchase shares. a. What is the cost of equity after recapitalization? (Do not round Intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g.. 32.16.) b. What is the WACC? (Do not round Intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Cost of equity b. WACC %

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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Fields & Company expects its EBIT to be $91,000 every year forever. The firm can
borrow at 7 percent. The company currently has no debt, and its cost of equity Is 12
percent and the tax rate is 22 percent. The company borrows $150,000 and uses the
proceeds to repurchase shares.
a. What is the cost of equity after recapitalization? (Do not round Intermediate
calculations and enter your answer as a percent rounded to 2 decimal places, e.g..
32.16.)
b. What is the WACC? (Do not round Intermediate calculations and enter your answer
as a percent rounded to 2 decimal places, e.g., 32.16.)
a. Cost of equity
b. WACC
28 29
%
%
Transcribed Image Text:Fields & Company expects its EBIT to be $91,000 every year forever. The firm can borrow at 7 percent. The company currently has no debt, and its cost of equity Is 12 percent and the tax rate is 22 percent. The company borrows $150,000 and uses the proceeds to repurchase shares. a. What is the cost of equity after recapitalization? (Do not round Intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g.. 32.16.) b. What is the WACC? (Do not round Intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Cost of equity b. WACC 28 29 % %
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