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EnviroTech plc is an international company in the UK . The company is dedicated to protecting and preserving the environment through innovative and sustainable solutions.

EnviroTech plc is an international company in the UK. The company is dedicated to protecting and preserving the environment through innovative and sustainable solutions. Its aim is to minimize the negative impact of human activities on the environment, promote conservation, and create a sustainable future for generations to come. By combining expertise, innovation, and a passion for the environment, EnviroTech plc strives to be a leading force in environmental management, creating a sustainable future for all. The company is financed by both equity and debt. The debt to equity ratio of EnviroTech plc is 1. The book value of total assets of the company accounts for 9,000 million.The debt is in the form of long-term bonds, with a coupon rate of 12%. The bonds are currently rated AA and are selling at a yield of 13.50%. The market value of the bonds is 85% of the book value. The firm currently has 45 million shares outstanding, and the current market price is 75 per share. The firm pays a dividend of 4.5 per share and has a price/earnings ratio of 12. The stock currently has a beta of 1.45. The six-month Treasury bill rate is 6.5%. The market risk premium is 5.0%. The tax rate for this company is 25%.EnviroTech plc is evaluating its capital structure and considering a major change in its capital structure. It has the following three options:
Option 1: Issue 1.4 billion in new stock and repurchase half of its outstanding debt. This will make it an AAA rated company. AAA rated debt is yielding 10.5% in the market place.
Option 2: Issue 1.5 billion in new debt and buy back stock. This will drop its rating to A-. A-rated debt is yielding 14.25% in the market place.
Option 3: Issue 2.5 billion in new debt and buy back stock. This will drop its rating to CCC. CCC rated debt is yielding 18.35% in the market place.Calculate the cost of equity, after-tax cost of debt and the cost of capital under each option. From a cost of capital standpoint, discuss which of the three options the company should pick or whether the company should maintain its current capital structure.
Tips: Research levered beta and unlevered beta
when and why do i need to calculate the beta.

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