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What value should be used for debt

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Reference no: EM132856504

Here is a simplified balance sheet for Epicure Pizza (figures in $ millions):

Assets Liabilities and Shareholders' Equity

Current assets $120             Current liabilities$160

Fixed assets 118                    Long term debt 28

Equity 50

Total$238                            Total$238

Note: There are 10 million shares outstanding.

Epicure shares are currently priced at $8 each.

Problem a. What value should be used for debt when calculating the firm's WACC?

Problem b. Since Epicure issued its debt, interest rates have fallen substantially. Do you need to revise your measure of the debt ratio upward or downward?

Reference no: EM132856504

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