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a) The value of Smith Limited is $600m and the company is unlevered. They decide to borrow $75m worth of debt for six years (it is expected to be renewed in perpetuity). The tax rate is 15% and the interest rate is 7%. Calculate the value of the levered firm. Answer to the nearest dollar.
b) The WACC of Smith Ltd is 11%, the value of debt is $2.5m and the value of ordinary stock is $5m. The cost of debt is 6%. Calculate the cost of common stock. (Answer as a decimal to 4 Decimal Places)
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