Thomas Co. expects its EBIT to be $250,000 every year forever. The firm can borrow at 5 percent. The company currently has no debt, and its cost of equity is 14 percent. The corporation tax rate for Thomas is 21 percent. (a) What is the value of the firm? (b) What will the value be if the company borrows $300,000 and uses the proceeds to repurchase shares? (c) What is the cost of equity after recapitalization? (d) What is the WACC after recapitalization?
