Problem:
O'Connell & Co. expects its EBIT to be $74,000 every year forever. The firm can borrow at 7 percent. O'Connell currently has no debt, and its cost of equity is 12 percent and the tax rate is 35 percent. The company borrows $125,000 and uses the proceeds to repurchase shares.
Required:
Question: What is the cost of equity after recapitalization? What is the WACC?
Note: Please provide full description.