Decides on changing the capital structure

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Reference no: EM13810669

You are provided the following information:

Debt $ 90000

Equity $ 90000

The shares trade at $ 10; the growth rate is 10%. Dividends last year were $ 1.00. The firm has a 40% tax rate.

$ 100 face value, 30 year, 8% coupon bonds trade at par.

1. What is the weighted average cost of capital (WACC) ?

2. What is the WACC if the CFO decides on changing the capital structure to 60% debt and 40% equity?

3. What happens to WACC if the capital structure changes to Debt 40% and 60% equity?

4. What can you say about WACC?

Reference no: EM13810669

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