Ch$\mathrm{.}13$: M&M Case $2$ WACC

NoVa Automotive is a young firm that produces $$50,000$ in EBIT and has no debt. The

firm's current cost of equity is $10\%$ and Its tax rate is $20\%.$ NoVa is considering a change to

its capital structure such that the firm will issue $$200,000$ in debt at a rate of $5\%$ and use

the proceeds to repurchase shares. Assume no new net investment in operating capital,

zero EBIT growth, and no bankruptcy costs. What will be the NoVa's WACC after they have

levered the firm?

$10\mathrm{.}00\%$

$13\mathrm{.}33\%$

$14\mathrm{.}80\%$

$9\mathrm{.}09\%$

$11\mathrm{.}12\%$

$7\mathrm{.}84\%$

$8\mathrm{.}91\%$

$16\mathrm{.}51\%$