solution

Meyer & Co. expects its EBIT to be $78,000 every year forever. The firm can borrow at 7 percent. Meyer currently has no debt, and its cost of equity is 12 percent.

If the tax rate is 35 percent, what is the value of the firm? Note: Use the M&M proposition | formula with taxes but without any debt. Use the cost of equity as a measure of the unleveraged cost of capital Ru. (Do not round intermediate calculations. Round your final answer to 2 decimal places, e.g., 32.16.)

Value of the firm $

What will the value be if the company borrows $103,000 and uses the proceeds to repurchase shares? Note: Use the M&M proposition i formula with taxes and with debt. (Do not round intermediate calculations. Round your final answer to 2 decimal places, e.g., 32.16.)

Value of the firm