Frederick Co. expects its EBIT to be $92-000 every year forever. The firm can borrow at 9%. Frederick currently has no debt- and its cost of equity…

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Frederick & Co. expects its EBIT to be $92,000 every year forever. The firm can borrow at 9%. Frederick currently has no debt, and its cost of equity is 15%. If the tax rate is 35%, what is the value of the firm? What will the value be if the company borrows $60,000 and uses the proceeds to repurchase shares?

Question:Frederick & Co. expects its EBIT to be $92,000 every year forever. The firm can borrow at 9%.Frederick currently has no debt, and its cost of equity is 15%. If the tax rate is 35%,…

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