Question: Following three problems Current Total assets $3,000,000,000 Tax rate 25% Operating income (EBIT) $8,000,000,000 Debt ratio 0% Interest expense $0 WACC 10% Net income $480,000,000

Following three problems
Current	Total assets	$3,000,000,000	Tax rate	25%
	Operating income (EBIT)	$8,000,000,000	Debt ratio	0%
	Interest expense	$0	WACC	10%
	Net income	$480,000,000	M/B ratio	1.00×
	Share price	$32.00	EPS	$3.20
	Estimated growth rate	0%
	Dividend payout ratio	100%

After going through extensive analysis, the company has decided to target 30% debt and 70% equity based on market values. This strategy is expected to increase the cost of equity to 13%, assuming the pre-tax cost of debt 7%.

What is the target WACC?

What is the target firm value?

Do you agree with this target capital structure strategy as a more optimal capital structure? explain

Positive Ratings will be given

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