How much will total firm value increase

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EPL, Inc. currently has an all-equity capital structure. It has an expected perpetual operating income of EBIT=$1,250,000 per year and a corporate tax rate of TC=35%. The personal tax rate on debt is Tp=32% and the personal tax rate on equity is TpE=15%. Assume no financial distress costs.

Problem 1: If EPL levers the firm by borrowing D=$1,000,000 of perpetual debt at par and repurchases shares, by how much will total firm value increase (the change in value)?

Reference no: EM132882729

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