Q 16.30. Compute a graph similar to Exhibit 16.2. Use a spreadsheet. Your firm will be worth
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Q 16.30. Compute a graph similar to Exhibit 16.2. Use a spreadsheet. Your firm will be worth either $50,000 or $100,000 with equal probabilities. The cost of capital on your debt is given by the formula &(Debt) = 5% +10% Debt-but only if the debt is risky. (Hint: The risk-free rate of return is 11.85%. What is the WACC of the firm if it is 100% debt fi- nanced?)
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