FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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A company has an expected perpetual EBIT of $8,000. The unlevered cost of capital
is 10% and there are 25,000 shares of stock outstanding. The company is
considering issuing $15,000 in new par bonds to add financial leverage. The
proceeds of the debt issue will be used to repurchase equity. The cost of debt is 6%
and the tax rate is 30%. There are no flotation costs. What is the value of the equity
after the restructuring?
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Transcribed Image Text:A company has an expected perpetual EBIT of $8,000. The unlevered cost of capital is 10% and there are 25,000 shares of stock outstanding. The company is considering issuing $15,000 in new par bonds to add financial leverage. The proceeds of the debt issue will be used to repurchase equity. The cost of debt is 6% and the tax rate is 30%. There are no flotation costs. What is the value of the equity after the restructuring?
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