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DARKSENT INC currently is a cloud computing firm but is considering expanding into producing laptop customers. In its current form, Darksent has a WACC of
DARKSENT INC currently is a cloud computing firm but is considering expanding into
producing laptop customers. In its current form, Darksent has a WACC of and
they have a target capital structure of and equity Darksent also has a tax rate
of
Darksent realizes that using its current WACC is to evaluate an expansion into this new
line of business is not good practice. Therefore, it has gathered data on two firms that
has expanded into other sector of the cloud computing business to guide their
calculations of an appropriate cost of capital. Using this data, calculate a cost of equity
for Darksent proposed expansions into computer manufacturing. Company A and
Company B have a tax rate of Assume a risk free rate of and a market risk
premium of
B If Rarksent uses a pre tax cost of debt is for their laptop divisions and their tax
rate is what is the cost of capitalWACC they should use to evaluate this
expansion?
C Suppose Darksent has conducted an EBIT EPS analysis, and the breaker EBIT is
determined to be $ million. Suppose their average EBIT is $ million with a standard
deviation of $ million. What is the chance Darksent will not earn their breakeven
EBIT? What does EBITEPS analysis suggest about the risk of choosing debt as
opposed to equity? points
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