Divided Airlines is currently an unlevered firm. The company expects to generate $153.85 in EBIT in...

Divided Airlines is currently an unlevered firm. The company expects to generate $153.85 in EBIT in perpetuity. The corporate tax rate is 35%, implying after - tax earnings of $100. All earnings after tax are paid out as dividends. The firm is considering a capital restructuring to allow $200 of perpetual debt. Its cost of debt is 10%. Unlevered firms in the same industry have cost of equity of 20%. What is the new value of Divided Airlines (assuming t he cost of financial distress is 0)?

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jeff jeffy answered 5 months ago

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