QUESTION 10

Bluegrass Mint Company has a debt-equity ratio of 0.42. The required return on the company's unlevered equity is 11.7% and the pretax cost of the firm's debt is 5.4%. Sales revenue for the company is expected to remain stable indefinitely at last year's level of $18,122,960.3. Variable costs amount to 62% of sales. The tax rate is 34% and the company distributes all its earnings as dividends at the end of each year. What would be the value of debt? HINT: Use the WACC to compute the value of the company and then determine the amount of debt