Question
14. Cisco Systems currently has 1 million shares outstanding worth $10 per share, and a capital structure that consists of 30% debt at a 5%
14. Cisco Systems currently has 1 million shares outstanding worth $10 per share, and a capital structure that consists of 30% debt at a 5% interest rate. Cisco is considering purchasing Clark Technology, which has 500,000 shares outstanding worth $8.50 each and no debt. Clarks cost of equity is 11 percent and Cisco Systems cost of equity is 12%. If, after the purchase, Cisco recapitalizes Clark Technology to have the same capital structure as Cisco, with debt at the same interest rate, what will be Clarks WACC? Both firms face a 25% tax rate.
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