Question
Please do d,e,f only Celsius Inc. currently has $200,000 perpetual debt that has an interest rate of 6%. The market value of the debt is
Please do d,e,f only Celsius Inc. currently has $200,000 perpetual debt that has an interest rate of 6%. The market value of the debt is $240,000. Its EBIT is expected to be $64,000 per year forever. There are 5,000 common shares outstanding that are trading at $52 per share. The tax rate is 40%. a) Calculate its cost of debt and its cost of equity. b) Calculate the unlevered firm value and the unlevered cost of equity. c) Using the WACC method, calculate the (levered) firm value. Assume that Celsius borrows extra $100,000 at its current market borrowing rate (i.e., its cost of debt) to repurchase its own shares. The present value of bankruptcy costs is estimated to be 4% of the total market value of its debt after recapitalization. d) Calculate the new firm value after recapitalization. e) Calculate the cost of equity and the WACC after recapitalization. f) Calculate the new stock price and number of shares outstanding after recapitalization.
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