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3. a). Calculate the WACC in the presence of taxes for a corporation using the following information: Debt = 8 million lei book value of
3. a). Calculate the WACC in the presence of taxes for a corporation using the following information: Debt = 8 million lei book value of bonds. The bonds are trading at 90% of par, the yield to maturity being 10%. Equity = 4 million lei market value, the expected return being 16%. b). Suppose that the corporation decides to move to a 40% debt ratio which will result in a decrease of the cost of debt to 7%. Knowing that the business risk has not changed recalculate the WACC under a taxation rate of 10%.
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