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What will be the value of the firm after the debt issue

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Reference no: EM132956557

Brealey Corporation is currently all equity financed and has a value of $80 million. Investors currently require a return of 11.00 percent on common stock. Brealey pays no taxes. Brealey plans to issue $50 million of debt with a return of 6.5 percent and use the proceeds to repurchase common stock.

Question:

1. What will be the value of the firm after the debt issue?
2. Given the value of the firm after the debt issue, what will be the value of the equity after the debt issue?
3. Given the value of the equity after the debt issue, what will be the expected return on the stock after the debt issue?
4. Given the expected return on the stock after the debt issue, what will be the Weighted Average Cost of Capital after the debt issue?

Reference no: EM132956557

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