Bruce & Co

question 70

Multiple Choice

Bruce & Co.expects its EBIT to be $100,000 every year forever.The firm can borrow at 10 percent.Bruce currently has no debt,and its cost of equity is 20 percent.The tax rate is 34 percent.What will the value of Bruce & Co.be if the firm borrows $54,000 and uses the loan proceeds to repurchase shares?

• A)$280,130
• B)$346,600
• C)$348,360
• D)$378,900
• E)$381,520

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Definitions:

Egocentrism

The inability to understand or assume any perspective other than one's own.

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A method used to reduce reactions to repeated stimuli by exposing the subject to the stimulus over time until the response diminishes.

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The understanding that objects continue to exist even when they cannot be observed (seen, heard, touched, smelled or sensed in any way).

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A Swiss psychologist known for his pioneering work in child development and his theory of cognitive development.