Beltran Enterprises is a publicly traded transportation firm with 80 million shares Outstanding, trading at $25 a share and $ 500 million in debt The firm has S120 million in operating income (EBIT), its current cost of equity is 10% and its current rating is A (with a default spread of 2% over the risk-free rate). The current risk-free rate is 4%. the marginal tax rate is 40% and the equity risk premium is 5%. Estimate the current cost of capital for the firm Now assume that the turn is considering tripling its dollar debt and buying back Stock If this action will lower the bond rating to B and increase the default spread to 6%. estimate the interest expenses at the new debt level and the tax rate to use to compute the after tax cost of debt, c. If the firm does triple its dollar debt and buys back stock, estimate the new cost Qf capital for the firm Beltran is modeling its increase debt/buyback strategy on Civitas Inc.. another Firm in the same sector, Civitas was an all equity funded firm with 100 million shares outstanding trading at $ 10 a share, a cost of equity of 9% and expected growth rate forever of 3% The firm borrowed S 600 million and bought back shares at $10.50 apiece Assuming investors are rational, estimate the cost of capital for Civitas after the Transaction Pennsylvania Steel, one of the largest steel companies in the United States, is consWenng whether it has any excess debt capacity. The company has $527 million m market value of debt outstanding and $1.76 billion of market value of equity The company has EBIT of $131 million and faces a corporate tax rate of 36% The company's bonds are rated BBB. and the cost of debt is 8% At this rating the company has a probability of default of 2 30%, and the cost of bankruptcy is estimated to be 30% of firm value Estimate the unlevered value of the firm Estimate the levered value of the firm using the APV approach, at a debt ratio of 50% At that debt ratio the firm s bond rating will be CCC. and the probability of default will increase to 30%