What is delphi cost of equity

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Reference no: EM132867719

a. Delphi Ltd has no debt but can borrow at 8%. The firm's WACC is currently 12%. Assuming no corporate taxes:

i. What is Delphi's cost of equity?

ii. If the firm converts to 40% Debt, what will Delphi's cost of equity be?

iii. Using MM proposition II what will be Delphi's WACC in part (ii) above?

Please solve it in the full formula and detail

b. Briefly explain the Miler-Modigliani Propositions I and II

c. Explain how the cost of debt, the cost of equity and the weighted average cost of capital (WACC) behave as the firm's financial leverage increases from zero (assuming a classical tax system and bankruptcy cost). Is there an optimal capital structure? Explain your answer.

Reference no: EM132867719

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