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Based on the book values in the balance sheet of the company presented below, answer the following questions: Assets Liabilities and Shareholders Equity Asset (book

Based on the book values in the balance sheet of the company presented below, answer the following questions:

Assets Liabilities and Shareholders Equity
Asset (book value) $ 75 Debt $ 25
Equity $ 50
Total $ 75 Total $ 75

a. What is the book value of the company?

b. Calculate debt (D/V) and equity (E/V) ratios of the company.

c. Suppose the cost of equity and debt are 15% and 10%, respectively. What is the cost of capital for the company?

d. Suppose a company has 6 million of shares outstanding each traded for $4 and the market value of its debt securities is now 20% below its book value. If companys shareholders demand 20% expected rate of return and bonds yield 14% now and corporate tax rate is 25%, what is the WACC of the company?

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