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What is the weighted average cost of capital for tiger corp

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Tiger Corp. currently has a debt-to-value ratio (D/V) of 0.35. Their cost of debt (rD) is 8% and the company's equity beta is 1.5. The risk-free rate is 5%, and the expected market risk premium (rM - rf) is 10%. The current market value of the firm (i.e., debt plus equity) is $100 million, and there are 1 million shares outstanding. Assume all debt is perpetual. Ignore taxes and all other market frictions.

Problem 1: What is the weighted average cost of capital for Tiger Corp.?The CEO suggests that the company needs to increase their debt-to-value ratio to 45% by issuing bonds and repurchasing shares. As a result of this restructuring, the cost of debt will rise to 10%.

Problem 2: How much additional debt does Tiger need to issue?

Problem 3: At what price will the shares be repurchased? How many shares will be repurchased?

Problem 4: What will the company's WACC be after the restructuring?

Problem 5: What is the new cost of equity capital?

Problem 6: Are equity holders better off after this financing transaction? Why or why not?

Reference no: EM132885077

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