The leverage change affect the firm market value

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Reference no: EM131903916

EBIT = $300 for the next five years, after which the company will go out of business and be worth zero. rRF = 3% Expected return on the market = 11% Stock’s beta (β) = 0.9 The firm’s corporate tax rate is 28%. The firm’s investment bankers say that it could sell new debt at a 5.5% yield. The company’s market-valued balance sheet is financed one-third with debt and two-thirds with equity. A) Compute the market value of the firm’s stock. B) What would be the stock’s beta (β) if the balance sheet included a different proportion of debt and equity: say wd = .5 and ws = .5? How would that change the firm’s WACC? How would the leverage change affect the firm’s market value?

Reference no: EM131903916

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