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.