Problem:
Bruce & Co. expects its EBIT to be $140,000 every year forever. The firm can borrow at 9%. Bruce currently has no debt, and its cost of equity is 17%.
Required:
Question: If the tax rate is 35%, what is the value of the firm? What will the value be if Bruce borrows $135,000 and uses the proceeds to repurchase shares?
Note: Explain all calculation and formulas.