Determine the value of the firm and the firm wacc

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Assume that a firm has no debt in its capital structure. It has expected NOI of sh.100,000 and equity capitalization rate Ke of 10%. Since it is all equity financed, WACC = cost of equity(Ke) i.e 10%

Required:

1. Determine the value of the firm

2. Assume the firm in question 1 is able to change its capital structure replacing equity by debt of sh.300,000. The cost of debt is 5% Determine i. The value of the firm ii. The WACC.

3. Suppose the firm uses more debt in place of equity and increases debt to sh.900,000. Cost of debt is 5%. Ke= 10% and NOI is sh.100,000 Determine the value of the firm and the firm’s WACC.

Reference no: EM131523271

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