Perpetual earnings before interest and taxes

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Suppose Fox Wood Corp. (FWC) has perpetual earnings before interest and taxes (EBIT) of $10 million per year. Fox Wood’s unlevered cost of equity is 12%. FWC is subject to a corporate tax rate of 40%. It has $50 million in permanent debt in its capital structure, and the (pre-tax) cost of debt is 7% (EAR). What is the after-tax WACC for Fox Wood Corp?

Reference no: EM13938391

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