Question
Environ4Us Ltd has the following capital structure. Value Cost of funds Debt 120,000,000 3.5% Equity 180,000,000 11.0% Calculate the weighted average cost of capital for
Environ4Us Ltd has the following capital structure.
| Value | Cost of funds | |
| Debt | 120,000,000 | 3.5% |
| Equity | 180,000,000 | 11.0% |
- Calculate the weighted average cost of capital for Environ4Us Ltd.
Environ4Us Ltd is planning to restructure. This will involve buying back $100,000,000 worth of shares and selling $100,000,000 worth of bonds (debt).
- Calculate the weighted average cost of capital for Environ4Us Ltd after the firm has changed their capital structure.
- State what has happened to the weighted average cost of capital with the restructure and why.
- What impact will this have on the net present value of the future cash flows for any project Environ4US Ltd undertakes?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Managerial Economics
Authors: Luke M. Froeb, Brian T. McCann, Michael R. Ward
5th Edition
1337106666, 978-1337106665
