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FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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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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- nonearrow_forwardI want to correct answer accounting questionsarrow_forwardBuggins Inc. is financed equally by debt and equity, each with a market value of $1 million. The cost ofdebt is 5%, and the cost of equity is 10%. The company now makes a further $250,000 issue of debt anduses the proceeds to repurchase equity. This causes the cost of debt to rise to 5.5% and the cost of equityto rise to 10.83%. Assume the firm pays no taxes. 1. What is the overall cost of capital?2. What is the percentage increase in earnings per share after the refinancing? I already asked the question, and there was a mistake: equity and debt are each 1.000.000 in the beginning. I don´t understand the solution for the number 2: There was interested included and I don´t know how to derive interest from the given numbersarrow_forward
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