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Bavarian Brew Bavarian Brew, an Unlevered Firm, Has an Expected EBIT of EBIT

Question 2

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Bavarian Brew
Bavarian Brew, an unlevered firm, has an expected EBIT of $500,000. The required return on assets for the firm's assets is 10%. The company has 250,000 shares outstanding. The company is considering raising $1 million in debt with a required return of 6% and would use the proceeds to repurchase outstanding stock.
-What is the value of Bavarian Brew before restructuring? Assume a corporate tax rate of 34%.


A) $5,000,000
B) $500,000
C) $3,300,000
D) $1,000,000

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