Question

Tatum can borrow at 7.4 percent. The company currently has no debt and the cost of equity is 11.8 percent. The current value of the firm is $695,000. The corporate tax rate is 25 percent. What will the value be if the company borrows $410,000 and uses the proceeds to repurchase shares

Answer 1

the value be if the company borrows $410,000 is $797,500

Step-by-step explanation:

The computation of the value be if the company borrows $410,000 is given below:

= Value of the firm + borrowed amount × corporate tax rate

= $695,000 + $410,000 × 25%

= $797,500

hence, the value be if the company borrows $410,000 is $797,500

Therefore the same should be relevant