Problem:
Cede & Co. can borrow at 12.25 percent. Cede currently has no debt, and the cost of equity is 15.50 percent. The current value of the firm is $679,000. The corporate tax rate is 40 percent.
Required:
Question: What will the value be if Cede borrows $228,000 and uses the proceeds to repurchase shares?
Note: Show supporting computations in good form.