Jericho Snacks is an all-equity firm with estimated earnings before interest and taxes of $826,000 annually forever. Currently, the firm has no debt but is considering borrowing $650,000 at 6.75 percent interest. The tax rate is 34 percent and the current cost of equity is 17.2 percent.
What is the value of the levered firm?
What would happen if debt went down by 20%?
How do you see leverage yourselves, is it something good or bad.