Question
The Nantucket Nugget is unlevered and is valued at $720,000. Nantucket is currently deciding whether including debt in its capital structure would increase its value.
The Nantucket Nugget is unlevered and is valued at $720,000. Nantucket is currently deciding whether including debt in its capital structure would increase its value. The current cost of equity is 12%. Under consideration is issuing $300,000 in new debt with an 8% interest rate. Nantucket would repurchase $300,000 of stock with the proceeds of the debt issue. There are currently 32,000 shares outstanding and their effective marginal tax bracket is zero.
What is Nantucket's new cost of equity?
What is Nantucket's new weighted average cost of capital (WACC)?
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Financial Institutions Management A Risk Management Approach
Authors: Anthony Saunders, Marcia Cornett
6th Edition
0077211332, 9780077211332
