UNLEV Has an Expected Perpetual EBIT = $4,000

question 266

Multiple Choice

UNLEV has an expected perpetual EBIT = $4,000. The unlevered cost of capital = 15% and there are 20,000 shares of stock outstanding. The firm is considering issuing $8,800 in new par bonds to
Add financial leverage to the firm. The proceeds of the debt issue will be used to repurchase equity.
The cost of debt = 10% and the tax rate = 34%. There are no flotation costs.
If there were no taxes, what would be the value of UNLEV before the restructuring?

• A) $15,930
• B) $17,600
• C) $18,519
• D) $26,667
• E) $30,000

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