What will be the new value of the firm

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A company has no debt financing and a market value of $10 million and an equity beta of 1.0. The cost of equity for the unlevered company is 12%. The company is considering a permanent change in its capital structure to be 30% debt financed based on its unlevered value (i.e. $3 million of debt financing). The debt has no default risk and the cost of debt is 4%. The corporate tax rate is 25%. There are no personal taxes. If the company permanently changes to the new capital structure, what will be the new value of the firm?

Reference no: EM132000810

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