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Please provide answers and show work, thank you very much! II. Unlevering and Relevering the Cost of Equity and Beta If the project's debt capacity
Please provide answers and show work, thank you very much!
II. Unlevering and Relevering the Cost of Equity and Beta If the project's debt capacity is significantly different from the company's existing assets, WACC should be adjusted by following the three step procedure. The firm's current Capital Structure and WACC Cost of debt (ro) .06 Cost of equity (re) .124 Marginal tax rate (T) .35 Debt ratio (D/V) 500/1,250 Equity ratio (E/V) 750/1,250 = .6 .4 1. Calculate the opportunity cost of capital r = Or Unlevered WACC 2. Calculate the re (at the new debt ratio) 3. Calculate WACC at the new financing weights II. Unlevering and Relevering the Cost of Equity and Beta If the project's debt capacity is significantly different from the company's existing assets, WACC should be adjusted by following the three step procedure. The firm's current Capital Structure and WACC Cost of debt (ro) .06 Cost of equity (re) .124 Marginal tax rate (T) .35 Debt ratio (D/V) 500/1,250 Equity ratio (E/V) 750/1,250 = .6 .4 1. Calculate the opportunity cost of capital r = Or Unlevered WACC 2. Calculate the re (at the new debt ratio) 3. Calculate WACC at the new financing weightsStep by Step Solution
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