MM with Corporate Taxes, the Holland Company expects perpetual earnings before interest and taxes (EBIT) of $4 million ($4,000,000.00) per year. The firm’s after-tax all-equity discount rate (ro) is 15.00 percent. Holland is subject to a corporate tax rate of 35.00 percent. The pre-tax cost of the firm’s debt capital is 10.00 percent per annum, and the firm has $10 million ($10,000,000.00) of debt in its capital structure.
a. What is Holland’s value?
b. What is Holland’s cost of equity (rs)?
c. What is Holland’s weighted average cost of capital (rWACC)?