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4. Tri Co. has the following cost of debt structure: w d 0% 20% 30% 40% 50% r d 0.0% 10.0% 12.0% 14.0% 15.0% The
4. Tri Co. has the following cost of debt structure:
wd | 0% | 20% | 30% | 40% | 50% |
rd | 0.0% | 10.0% | 12.0% | 14.0% | 15.0% |
The market risk premium is 7%, the risk free rate is 4%, beta of unleveraged firm is 1.10, Hamadas equation b= bU [1 + (1 - T)(wd/we)]. Tax rate T = 35%.
Please use the above information to answer following questions:
a. If the firm uses 40% debt, what is the cost of equity of the firm, based on CAPM model?
b. What is WACC of the firm?
c. If FCF0 = 300 million, g=4%, what is the firm value?
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