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Find what will the new value of the firm be

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Reference no: EM132578910

EQ is an all equity firm (10,000 shares), with the cost of capital of 19%. The EBIT of the firm is £2,500.

Question a) What is the value of EQ firm?

Question b) The president of the firm proposes to issue £8,000 of debt at an interest rate of 11%, and use the proceeds to repurchase 550 shares of common stock. What will the new value of the firm be? What is the required rate of return on equity after the capital structure change? (Suppose the corporate tax is 35%)

Question c) Suppose personal tax on interest is 30% and personal tax on equity income is 15%, will you recommend such debt- stock exchange offers?

Reference no: EM132578910

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