Question
Wild Widgets has the following capital structure. Type of Financing Market Value Before Tax Cost Debt $5,000,000 9% Equity $13,000,000 15% Wild Widgets has a
Wild Widgets has the following capital structure.
| Type of Financing | Market Value | Before Tax Cost |
| Debt | $5,000,000 | 9% |
| Equity | $13,000,000 | 15% |
Wild Widgets has a 34 percent marginal tax rate and its WACC is currently 12.48 percent. Also, assume there are no costs of financial distress.
Assume Wild Widgets issues an additional $2 million in debt and uses the proceeds to repurchase $2 million of its equity. What will be the firms new WACC after the capital structure change?
Relative to the WACC initially given for this problem, how can the direction of the change in the WACC you computed be explained?
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Understanding Healthcare Financial Management
Authors: Louis C. Gapenski, George H. Pink
6th Edition
1567933629, 9781567933628
