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Debt and firm value

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Debt and firm value

This one is a little harder. Acacia Company Ltd expects an EBIT of $12 000 every year forever. Acacia currently has no debt and its cost of equity is 16 per cent. Acacia can borrow at 10 per cent. If the company tax rate is 30 per cent, what is the value of the firm? What will the value be if Acacia converts to 100 per cent debt?

Reference no: EM133004005

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