CAPITAL STRUCTURE XYZ PLC The management of XYZ plc wants to estimate the value of the company. The company's Chiet Financial Officer (CFO) has contacted you to assist in this task. In particular, the management is considering Ehanging the capital structure) of xyZ and wishes to understand the likely effect this will have on the company's market value. XYZ currently has in issue 1,000,000 shares that are trading at $12 per sbare, with equity beta of 1.625 t also has in issue perpetual debt with face value of 25,000000 (per 100 block) bearing a coupon rate ap XYZ is expected to generate annual cash flow 4%, currently trading at a discount o of E2 00 00 nex year w hich is forecasted to grow at an annual rate of 1 5% forever! rate is 3%and the market risk premiumis 8%. a of 0% on The risk free The company's CFO met with you and explained that the firm decided to change its capital structure to 40 e r and60% equ y. He asked you to estimate the currenrwegrtedAverageCostorcapital WAcc) of the compally. He also wanted you to estimate the WAC of the company i the capital structure is changed. However, because he could not remember much from his MSc course in Finance, he asked you to estimate the WACC under a number of scenarios. He gave you the following list of scenarios and specified that you should comment on the logile behind gach 1. The company does not change its capital structure. re sParad Phoncgaly R 2. Assume a world where there are no taxes or costs of financial distress and where Modigliani and Miller's (1958) propositions 1.2 hold. Jik)ser The company decides to change its capital structure to 40% debt and 60% equity. a The company decides to change its capital structure to 40% debt and 60% equity and th costs of debt and equity remain unchanged. b Assume corporation tax at 30% and also that as a result of the change in its capital structure, equity beta of XYZ increases from 1.625 to 1.8752. The company decides to change its capit structure to 40% debt and 60% equity. 3. "Before interest (i.e. to all providers of finance. interest is part of the cost of finance and hence not included in cash flow