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What is the cost of equity after recapitalization

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Reference no: EM132833593

Question - XYZ Company expects EBIT of $ 80000 every year for ever and its tax rate is 35%. The firm has no debt and its cost of equity is 10%. The firm can borrow at 6%.

a) What is the value of the firm?

b) What will the value be if the company borrows $208,000 and uses the proceeds to repurchase shares?

c) What is the cost of equity after recapitalization?

d) What is the WAAC after recapitalization?

Reference no: EM132833593

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