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thank you MERC Company was contemplating two (2) capital structure choices. The CFO should choose the optimal capital structure that the company must implement; this
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MERC Company was contemplating two (2) capital structure choices. The CFO should choose the optimal capital structure that the company must implement; this decision should maximise the stock price. To do so, the CFO must first perform calculations using data obtained from the company: Plan Alpha 20 % debt & 80% equity Wd-20%, Wc-80% Cost of debt (rd)-12% Tax rate- 30% bl-1.2 Risk Premium (RP)-4% Risk-free rate (rf)-6% 18-? WACC-? Plan Omega 30% debt & 70% equity Wd-30%, Wc-70% Cost of debt(rd)- 10% Tax rate-30% bL-1.5 Risk Premium (RP)-5% Risk-free rate (rf)-8% 18-? WACC-? *Hint: Compute for the first before computing the WACC 1. Based on the information above, if MERC did not include debt financing in its capital structure under Plan Alpha, what is the unlevered beta (bu)? Use a number with 2 decimal values 2. Based on the information above, if MERC did not include debt financing in its capital structure under Plan Omega, what is the unlevered beta (bu)? Use a number with 2 decimal values 3. What is the cost of equity (rs) for Plan Alpha ? (use beta-bl for computing)? Use a number in percent form, with 2 decimal values 4. What is the cost of equity (rs) for Plan Omega ? (use beta-bl for computing)? Use a number in percent form, with 2 decimal values Step by Step Solution
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