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The Smith Company is unlevered and is valued at $640,000. Smith is currently deciding whether including debt in its capital structure would increase its value.
The Smith Company is unlevered and is valued at $640,000. Smith is currently deciding whether including debt in its capital structure would increase its value. The current of cost of equity is 12%. Under consideration is issuing $300,000 in new debt with a 6% interest rate. Smith would repurchase $300,000 of stock with the proceeds of the debt issue. There are currently 32,000 shares outstanding and its effective marginal tax bracket is 35%. What will Smith's new WACC be?
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