Question
A company has no debt and is all equity financed. The companys securities value is $390,000 and EBIT is 90,000. Tax rate is 35%. The
A company has no debt and is all equity financed. The companys securities value is $390,000 and EBIT is 90,000. Tax rate is 35%. The company can borrow at 10%.
1- Calculate the firms required return on equity given zero level of debt.
2- What is the companys required rate of return on assets.
3- If the company borrows $100,000 and uses the proceeds to repurchase shares what is the new levered value of the company?
4- What is the new value of equity after the leverage?
5- What is the new cost of equity after the leverage?
6- What is the new WACC?
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