Question
Can I get help on the below question? I'm not sure if I'm doing it right. Please provide equations so I can follow the logic.
Can I get help on the below question? I'm not sure if I'm doing it right. Please provide equations so I can follow the logic.
Cars Corporation currently has 15% debt in its capital structure; however, its new CFO is considering changing the capital structure to 30% debt. The company has 4% annual coupon bonds outstanding that have a before-tax yield to maturity of 6%.Additional financial information is given below.
Risk-free rate, rRF2.50%Tax rate, T25%
Market risk premium (rM - rRF)5.00%Current beta, bL1.1
a.What is the company's WACC at its existing 15% debt ratio?
b.What would be the company's levered beta if it increased its debt ratio to 30%?Carry your answer out to 4 decimal places.
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International Finance Putting Theory Into Practice
Authors: Piet Sercu
1st edition
069113667X, 978-0691136677
