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14-6 Company XYZ currently has zero debt, and is a zero growth company with the data shown below. If the company is planning using some
14-6 Company XYZ currently has zero debt, and is a zero growth company with the data shown below. If the company is planning using some debt with the debt ratio as indicated below, and the money raised would be used to repurchase stock at the current price. It is estimated that the increase in risk from the additional leverage would cause the required rate of return on equity to rise, as indicated below. If this plan were carried out, by how much would the WACC change, i.e., what is WAC Cod - WACCNew? New Debt/Assets New Equity/Assets Interest rate new = rd 55% 45% 7.0% Orig. cost of equity, is New cost of equity = ['s. Tax rate 10.0% 11.0% 40%
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