Question
MM Models Start Up $ 16,000,000.00 EBIT 3,600,000 T 0 The required return on unlevered equity for this firm is rsU = 12%. This firm
MM Models
| Start Up | $ 16,000,000.00 |
| EBIT | 3,600,000 |
| T | 0 |
The required return on unlevered equity for this firm is rsU = 12%. This firm can borrow at a rate of rd = 8%. Assume all MM assumptions apply
What is its cost of equity (rs) and the weighted average cost of capital (ra) at debt levels of D= $0, D = $8 million, and D = $15 million?
a.Plot rd, rs, and ra as functions of the amount of debt.
b.What effect does leverage have on the weighted average cost of capital? Why?
c.How much debt should we use?
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Wordpress For Beginners The Step By Step Guide To Build Your Blog From Home And Start Making Money Online
Authors: Phil C Senior
1st Edition
1702916103, 978-1702916103
