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Olivia firm is planning to have a target capital structure 60% debt and 40% equity. Suppose the cost of equity for an unlevered firm is
Olivia firm is planning to have a target capital structure 60% debt and 40% equity. Suppose the cost of equity for an unlevered firm is 10% and the before tax cost of debt issued is constant at 6%. Calculate the Weighted Average Cost of Capital (WACC) for the Levered Firm assuming the corporate tax rate is 40%. Please also calculate the Market Value of Levered Firm and the Market Value of Equity for Levered Firm if the firm operating income is $1,000,000 and corporate tax rate is 40% .
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