Increase tax shield without changing the firm size

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Reference no: EM13915312

AP Corp has a WACC of 12%. The firm has a D/E ratio of .2. The cost of debt is 6%. Tax rate is 40%. Because of the profit has been growing in the last 3 years, the firm is considering increasing the tax shield. a. What can AP Corp do to increase tax shield without changing the firm size? Give your suggestion. b. According to your suggestion in part a, AP Corp changes its D/E ratio by 50% of the current D/E ratio. What is the new WACC of AP Corp?

Reference no: EM13915312

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