What is the firms wacc and total corporate value

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Craig company has a market value of $100M, consisting of 1M shares selling for $50 per share and $50M of 10% perpetual bonds now selling at par.The company's EBIT is $13.4M and its tax rate is 15%. The company can change its capital structure either by increasing its debts to 70% (based on market values) or decreasing it to 30%. If it decisdes to increase its use of leverage, it must call its bonds and issue new ones with a 12% coupon. If it decides to decrease its leverage, it will call its old bomds and replace them with new 8% coupon bonds. The company will sell or purchase stock at the new equilibrium price to complete the the capital structure change. The firm pays out all earnings as dividends; hence its stock is zero-growth stock. Its current cost of equity, r-s, is 14%. If it increases leverage, r-s will be 16%. If it decreases leverage, r-s will be 13%. What is the firm's WACC and total corporate value under each capital structure?

Reference no: EM13201880

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