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What is the current market value of the company

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A company is all equity financed with 18,000 shares outstanding and each share sells for $22. The EBIT of the company is $50,000. The company is debating of converting into a 40% debt capital structure, with 6% interest per annum. The cost of capital is currently 10%. Ignore taxes. You are required to answer the following:

(a) What is the current market value of the company?

(b) What is the market value of debt in the proposed debt capital structure?

(c) How many shares must be repurchased in the proposed levered company?

(d) What is the cost of equity in the levered company?

(e) What is the cost of capital of the levered company?

Reference no: EM133076358

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