Universal Corporation currently has no debt. Its cost of equity is 12 percent, and its...
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Universal Corporation currently has no debt. Its cost of equity is 12 percent, and its tax rate is 30 percent. The firm can borrow at 6 percent. Assume the company's EBIT is 100,000. Instructions: 1. Calculate the value of the firm. (5 points) 2. Calculate the value of the firm if the firm borrows 250,000 and uses the proceeds to repurchase shares. (5 points) 3. Calculate the firm's cost of equity and WACC after recapitalization. (10 points) 4. Explain the effect of financial leverage. (5 points)
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