6- If the company used a debt for 50% with 9% YTM (before tax cost of debt), then the WACC compared to WACC with no debt will: *

Increase 1.22%

Decrease 0.86%

Increase 0.95%

Decrease 0.76%

None of the above

Problem One MMM Co. has unleveraged beta 1.2, risk free rate 5%, and market risk premium for 4%. It works in the 40% tax bracket. The company is intending to build a new plant, and is studying the scenarios to finance it; The first scenario (1) is to finance the plant totally from equity, without any debt, and then the expected earnings per share will be to $2.7/share. The second scenario(2) is to finance the plant from a combination of debt and equity, where it is intending to borrow 30% of the budget with an interest rate of 9% before tax, then the expected earnings per share will increase to $3.2/share. Required: Use the given above to answer questions 1 through 8