TEX Inc. has EBIT of $1 million, an unlevered beta of 1.2 and pays 30% tax. The ASX200 is returning 12% and government bonds are yielding 3%.TEX Inc. has zero-coupon bonds trading at a 15% discount to par value with 3 years till maturity. There are 15 bonds outstanding, each with a book value of $100,000. Apply MM2 to calculate the after-tax WACC of the levered firm.

The unlevered CAPM that provides the unlevered cost of capital is (Answer: 11.8% / 12.8% / 13.8% / 14.8%.)

The market value of debt is (Answer : $1,275,000 / $1,375,000$ / 1,475,000 / $1,575,000).

The pre-tax cost of debt (Answer 3.57% / 4.57% / 5.57% / 6.57%)

Value of the unlevered firm is (Answer: $7,124,376.81 / $7,426,376.81 / $7,246,376.81 / $7,623,376.81.)

Value of the levered firm is (Answer$ : 7,026,376.81 / $7,124,376.81 / $7,246,376.81 / $7,628,876.81)

Value of equity in levered firm is (Answer : $6,053,876.81 / $6,135,876.81 / $6,353,876.81 / $6,533,876.81)

Ke of levered firm is (Answer : 14.96% / 15.76% / 16.76% / 17.76%)

WACC of levered firm is (Answer : 13.11% / 13.95% / 14.95% / 15.95%)