5

Problem 15- o Capital Structure Analysis Petit Printing Company has a total market value of $100 millon, consisting of 1 million shares selling for $50 per share and $50 million of 10% perpetual bonds now selling at par. The company's EBIT is $12.38 million, and its tax rate is 15%. Pettit can change its capital structure by either increasing its debt to 60% (based on market values) or decreasing it to 40%. If it decides to increase its use of leverage, it must call its old bonds and issue new ones with a 11% coupon i decides to decrease its leverage, it will call its old bonds and replace them with new 9% coupon bonds. The company will sell or repurchase stock at the new equilibrium price to complete the capital structure change. The firm pays out all earnings as dividends; hence, its stock is a zero growth stock. Its current cost of equity is 14%. If it increases leverage, is will be 16%, IT it decreases leverage, will be 13%. Present situation (50% debt): What is the firm's WACC Round your answer to three decimal places What in the total corporate value? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to three decimal places million 60% debt what in the firm's WACC Round your answer to two decimal places. What is the total corporate value? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to three decimal places million 40% debt what is the firm's WACC? Round your answer to two decimal places What is the total corporate value? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2. not 1,200,000. Round your answer to three decimal places million