New Schools, Inc

Multiple Choice

New Schools, Inc. expects an EBIT of $7,000 every year forever. The firm currently has no debt, and its cost of equity is 17 percent. The firm can borrow at 8 percent and the corporate tax rate is 34 percent. What will the value of the firm be if it converts to 50 percent debt?

A) $29,871.17
B) $31,796.47
C) $32,407.16
D) $34,552.08
E) $37,119.30