FINA 4310-Williams Capital Structure and WACC .Lone Star Industries has a debt to equity ratio of 2/3. The required return on the firm's unlevered equity is 16%, and the pre-tax cost of debt is 10%. Sales revenue is expected to remain the same in perpetuity at last year's level of $19,740,000. Variable costs are 60% of sales, and Lone Star is taxed at the corporate rate of40%. If Lone Star were financed by 100% equity, how much would the firm be worth? (Hint: Think how M&M would value the firm.) b Considering that the firm's debt-to-equity is 2/3d, what is the firm's cost of leveraged equity? ieversged oquity-uiyD/EX veraged oquity T- Tc What is the leveraged firm's WACC? Calculate the value of the firm. (Again think M&M) How much of this value is debt and equity? How much cash flow each year do the shareholders have a claim on? Given these cash flows and the cost of equity, how much is the firm's equity worth (show your calculation). (Hint: calculate the after tax cash flows that shareholders would get)