Question
Chaotic Injuries Int'l Inc. currently has 50 percent debt in its capital structure, the corporate tax rate is 0.2 and the before tax cost of
Chaotic Injuries Int'l Inc. currently has 50 percent debt in its capital structure, the corporate tax rate is 0.2 and the before tax cost of debt, rd, is the same as the risk-free rate. Given the following market parameters, rm = 7.5% , rf =2% , l = 1.84. Find the cost of equity, the weighted average cost of capital, the operating risk, i.e., u , the cost of equity if Chaotic Injuries Int'l Inc. were unlevered. Suppose that Chaotic Injuries Int'l Inc. recapitalized to a debt ratio of 20 percent. What is the cost of levered equity at this position? What is the weighted average cost of capital at this capital structure? If the EBIT of this firm were 200,000 what is the value of the firm unlevered? What is the value of this firm with D/V =.50?
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