What is WACC for the firm with its new capital structure

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Reference no: EM131049064

An unlevered firm, CEA Inc., has 160,000 common shares issued and outstanding. It has a perpetual constant EBIT of $800,000 and an unlevered beta of 1.5. The firm has corporate tax rate of 40%. The market risk premium is 8% and the risk- free rate is 3%. Assume a world of taxes and costs of financial distress.

a) Calculate the value of the firm.

b) Calculate the WACC for the firm.

c) What is the value of a share in the company and what is the EPS?

d) If the firm issues $1,000,000 of bonds with a coupon rate of 10%, and now the beta of the levered firm is 1.85, what is the value of the firm?

e) What is the WACC for the firm with its new capital structure?

Reference no: EM131049064

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