Meyer & Co. expects its EBIT to be $135,000 every year forever. The firm can borrow at 6 percent. The company currently has no debt, and its cost of equity is 9 percent and the tax rate is 23 percent. The company borrows $183,000 and uses the proceeds to repurchase shares.
a. What is the cost of equity after recapitalization? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b. What is the WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
