The firm want to add some leverage to their firm as they are running their business at a 0% debt level.The firm has a projected EBIT of $198,000 and can issue debt at 5.8% per annum. They wish to increase their D/E ratio to 1.08 at the end of the year. The firm estimates their cost of equity to be 14.1% and pays 34% in taxes per year. what is the firm value after it adds this leverage to the firm?

The firm want to add some leverage to their firm as they are running their business at a 0% debt level.The firm has a projected EBIT of $198,000 and can issue debt at 5.8% per annum. They wish to increase their D/E ratio to 1.08 at the end of the year. The firm estimates their cost of equity to be 14.1% and pays 34% in taxes per year. what is the firm value after it adds this leverage to the firm?

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter7: Corporate Valuation And Stock Valuation

Section: Chapter Questions

Problem 1P: Ogier Incorporated currently has $800 million in sales, which are projected to grow by 10% in Year 1...

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