New Schools Is an All-Equity Company with an Expected EBIT

question 90

Multiple Choice

New Schools is an all-equity company with an expected EBIT of $94,000 every year forever. The company can borrow at 7.4 percent while its cost of equity is 13.9 percent. What will be the value of the company if it converts to 50 percent debt given its total tax rate of 24 percent?

• A) $500,916
• B) $575,632
• C) $477,407
• D) $480,690
• E) $532,408