General Accounting Question please answer O'Connell & Co. expects its EBIT to be $95,000 every yearforever. The firm can borrow at 8 percent. O'Connell currentlyhas no debt, and its cost of equity is 13 percent and the taxrate is 35 percent. The company borrows $133,000 and usesthe proceeds to repurchase shares.a. What is the cost of equity after recapitalization?b. What is the WACC?

Step 1:Given data:EBIT: $95,000Debt (D): $133,000Cost of debt (rd): 8% or 0.08Tax rate (T): 35% or…

Answered: O'Connell & Co. expects its EBIT to be…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter17: Dynamic Capital Structures And Corporate Valuation

Section: Chapter Questions

Problem 3P

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