Hanover Tech is currently an all-equity firm with a WACC of 15%. The firm has 320,000 shares of stock outstanding with a market price of $19 per share. The tax rate is 34%. The firm is considering borrowing $1.2 million at 10% and use the proceeds to repurchase shares.
Required:
What is the levered value of the equity after adding $1.2 million debt if we assume that the tax is the only market imperfection?
Answers: 3
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