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Compute value of the firm after leverage-auto heating corp

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Problem: Auto Heating Corp. has expected earnings before interest and taxes (EBIT) of $100,000, an unlevered cost of capital of 15 percent. Now, the firm is considering to increase its leverage by issuing a debt of $200,000 to repurchase the stocks. The corporate tax rate is 40 percent. What is the value of the firm after leverage? Please describe your solutions in detail.

Reference no: EM132421927

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