Weighted average cost of capital after recapitalization

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Cops & Co. expects its EBIT to be $60,000 every year forever. Cops currently has no debt and its cost of equity is 22 percent. The firm is considering issuing new par bonds and uses the proceeds of the new debt to repurchase equity. The firm can borrow at 13 percent and tax rate is 35 percent. (a) What is the value of the firm? (b) What will the value be if Cops borrows $25,000 and uses the proceeds to repurchase shares? (c) What is the cost of equity after recapitalization? (d) What is the weighted average cost of capital (WACC) after recapitalization?

Reference no: EM13943794

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Weighted average cost of capital after recapitalization : Cops & Co. expects its EBIT to be $60,000 every year forever. Cops currently has no debt and its cost of equity is 22 percent. The firm is considering issuing new par bonds and uses the proceeds of the new debt to repurchase equity. The firm can borr..

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