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Determine the new cost of equity

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Reference no: EM132784629

Question - 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%.

a) Determine the new ATWACOC?

b) Determine the new Cost of Equity?

c) Determine the new value of the firm if the cash flows may be represented as a perpetuity.

Reference no: EM132784629

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