Uses the proceeds to repurchase shares

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Reference no: EM13920211

Bruce & Co expects its EBIT to be $185,000 every year, forever. The firm can borrow at 9%. Bruce currently has no debt and its cost of equity is 16%. The tax rate is 35%.

a) What is the value of the firm?

b) What is the value of the firm if Bruce decides to borrow $135,000 and uses the proceeds to repurchase shares? Clearly show your work.

Reference no: EM13920211

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