Presume that both debt and ebit are perpetual

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Reference no: EM1373634

Triad Labs has entire assets of $120 million and $40 million of debt in its capital structure. Its current cost of equity is 13% as well as its cost of debt is 8.5%. Triad is considering growing its debt to $70 million and purchasing its own stock with proceeds from the sale of $30 million in debt with a cost of 9.5%, reducing equity to $50 million. The cost of equity will rise to 14.5%. Net operating income (EBIT) will remain at $12 million. If Triad has a marginal tax rate of 40%, must the firm increase its debt? Presume that both debt and EBIT are perpetual

Reference no: EM1373634

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