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What is the company new cost of capital

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Reference no: EM133000055

A firm that believes in MM with taxes and is thinking about changing its capital structure to include additional debt. Before it had any debt at all, its cost of equity was 20%. Presently, it is using $20 million of debt but want to increase the debt to a total of $45 million.

a) What is the company's new cost of capital with the total debt?

b) What are the values of the tax shield with the two different levels of debt?

c) What is the company's WACC before it has any debt at all? The old and new debt have a coupon/yield of 8%. The company has a 30% tax rate.

Reference no: EM133000055

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