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I'm writing a financial paper and stuck on the impact of increasing the debt percentage part. Please use the info in the red boxes to
I'm writing a financial paper and stuck on the impact of increasing the debt percentage part.
Please use the info in the red boxes to help solve the blue boxes.
Then advise, by increasing the companies percent of debt from 0% to 20%, the WACC was lowered to ?
The new value of the firm is now ?
By increasing the companies percent of debt from 0% to 20%, the WACC was lowered to ?
The new value of the firm is now ?
Wacc Analysis Equity Market Cap. 181,930,000,000 %Debt-23,601,000,000/ (23,601,000,000 + Equity 181,930,000,000)-8.7% % Equity-1 % Debt % Equity = 1-8.796-913-91.3% Interest Expense $972,000,000 Cost of Debt-Interest Expense/Debt Cost of Debt $972,000,000/ 23,601,000,000-0.0411- 4.11% Tax Rate : Income Tax Expense Income Before Tax 4,534,000/ 12,491,000 = 36.29% Cost of Equity- Risk free rate+Beta * (Market Risk Premium) 2.27% + 1.09 * (11%-2.27%) : 2.27%+ 1.09 * 10.75% . 1 196-1 1 96% Risk free rate: look up the yield on 10 year US Treasury bonds-2.27% Beta: 1.09 Market Risk Premium: Assume 11% minus the risk-free rate: 1 1%-2.27%; 1075: 10.75% WACC % Debt * Cost of Debt * (1-Tax Rate) + % Equity * Cost of Equity WACCz 8.7% * 4.11% *Lt 3629%) + 91.3% * 11.96% -8.7% 4.11% * .6371 + 91.3% * 11.96-11.147%Step by Step Solution
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