What would firm value be the recapitalization

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Reference no: EM132001244

An unlevered firm with a cost of capital of 12.5% is expected to generate perpetual annual EBIT of $2.5M. The firm plans to retire some equity with $15M borrowed at an annual interest rate of 8%.

(A) What would firm value be following the recapitalization if the firm pays a 35% income tax?

(B) What would firm value be following the recapitalization if, in addition to corporate income tax, there is a 15% personal income tax on dividend income and a 25% income tax on interest income?

Reference no: EM132001244

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