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QUESTION
Old School Corporation expects an EBIT of $12,000 every year forever. Old School currently has no debt, and its cost of equity is 16 percent. The...
Old School Corporation expects an EBIT of $12,000 every year forever. Old School currently has no debt, and its cost of equity is 16 percent. The firm can borrow at 9 percent. If the corporate tax rate is 35 percent, what will the value be if Old School converts to 50 percent debt (assuming no bankruptcy costs)?
