Question
Springvale Corp. has EBIT of $25 million, before tax cost of debt of 9%, an unlevered cost of equity of 12%, a tax rate of
Springvale Corp. has EBIT of $25 million, before tax cost of debt of 9%, an unlevered cost of equity of 12%, a tax rate of 35% and debt of $75 million.
a) What is the cost of equity?
b) What is the WACC?
c) Suppose that the firm changes its capital structure so that the debt = $100 million
i. What will happen to the cost of equity under the new capital structure?
ii. What will happen to the WACC?
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Business Law and the Legal Environment
Authors: Susan S. Samuelson, Jeffrey F. Beatty
7th edition
1285860381, 978-1305445864, 1305445864, 978-0357689646, 978-1285860381
