Old School Inc. expects an EBIT of $18,000 every year forever. The firm currently has no debt, and its cost of equity is 12 percent.

Old School Inc. expects an EBIT of $18,000 every year forever. The firm currently has no debt, and its cost of equity is 12 percent. The firm can borrow at 6 percent and the corporate tax rate is 36 percent. What will the value of the firm’s equity be after it re-purchases 50% of its equity using newly issued debt?

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