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Better Home and Garden (BHG) expects an EBIT of $160,000 every year forever. The company currently...

Better Home and Garden (BHG) expects an EBIT of $160,000 every year forever. The company currently has no debt, and its unlevered cost of capital is 12%. Its average tax rate is 34%. The company wants to borrow $352,000 to repurchase shares. The debt will have an interest rate of 7.1% and will be kept constant forever.

What is the value of the firm with debt?

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Answer #1

Value of equity before capitalisation $880,000.00 (160000 *0.66)/0.12 $999,680 880000+(352000*0.34) Value of the firm with de

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