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Meyer & Co. currently has no debt, but it can borrow at 8 percent. The firm...

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Finance

Meyer & Co. currently has no debt, but it can borrow at 8percent. The firm value is $415,000, and its cost of equity is 13percent. The tax rate is 35 percent.

a. What will be the firm value if Meyer & Co. borrows$125,000 and uses the proceeds to repurchase shares?

b. What is the cost of equity after recapitalization?

c. What is the WACC after recapitalization?

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Transcribed Image Text

Meyer & Co. currently has no debt, but it can borrow at 8percent. The firm value is $415,000, and its cost of equity is 13percent. The tax rate is 35 percent.a. What will be the firm value if Meyer & Co. borrows$125,000 and uses the proceeds to repurchase shares?b. What is the cost of equity after recapitalization?c. What is the WACC after recapitalization?

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