UNLEV Has an Expected Perpetual EBIT = $4,000

Multiple Choice

UNLEV has an expected perpetual EBIT = $4,000. The unlevered cost of capital = 15% and there are 20,000 shares of stock outstanding. The firm is considering issuing $8,800 in new par bonds to add financial leverage to the firm. The proceeds of the debt issue will be used to repurchase equity. The cost of debt = 10% and the tax rate = 34%. There are no flotation costs.

What is the value of UNLEV's equity after the restructuring?

A) $11,792
B) $12,600
C) $12,819
D) $13,592
E) $16,461