Reference no: EM132775913
Assume the following balance sheet information:
Book Value Price per unit #of units coupon rate maturity
Bonds $100,000,000 $1,000 100,000 8% 10 years
Common Stocks $275,000,000 $85 5,000,000
Retained Earnings $400,000,000
Let the tax rate = 34%. Assume that the beta of the common stock is 1.2, the risk-free rate is 2%, and the market premium is 8%. Assume the firm would like to increase its debt so that its L, the percentage of debt financing, is 45%.
Problem a) Determine the new ATWACOC
Problem b) Determine the new Cost of Equity
Problem c) Determine the new value of the firm if the cash flows may be represented as a perpetuity.
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