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Capital stucture. Financing, please help with c,d Western Lumber Company expects to have an after-tax free cash flow of $3.1 million in the coming year.

Capital stucture. Financing, please help with c,d

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Western Lumber Company expects to have an after-tax free cash flow of $3.1 million in the coming year. Free cash flows are expected to grow at a rate of g=2.7% per year thereafter. Western Lumber has an expected return on its equity of 11.3% and an expected return on its debt of 4.9%. The corporate tax rate is 30%. The firm has an initial debt-to-equity ratio of 0.5 . Assume Western Lumber constantly rebalances its debt to maintain the current debt-to-equity ratio, at which the cost of financial distress is negligible. (a) What is the Weighted Average Cost of Capital of Western Lumber? (b) What is the value of Western Lumber with leverage (i.e., what is the current value of Western Lumber) based on its aftertax cash flow and WACC? million dollars (c) If Western Lumber was all-equity financed, what would be the value of the firm? million dollars x (d) What is the present value of the interest tax shields with Western Lumber's current leverage level? million dollars x

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