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Present value of financial distress costs

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Wayne Enterprises has historically been an all-equity firm. Management expects EBIT to be $1.34B in perpetuity starting one year from now. The cost of equity for Wayne Enterprises is 8.5% and the tax rate is 30%. Suppose that Wayne Enterprises borrows $5B and uses the funds to repurchase shares. What is the value of the firm if the present value of financial distress costs is $1.5B?

Reference no: EM133114575

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