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XYZ Company has long - term debt of 2 3 3 million and book value of shareholders equity of 2 9 2 million. The debt
XYZ Company has longterm debt of million and book value of shareholders equity of million. The debt has been financed at an annual interest rate of The estimated beta of the stock is currently and the expected annual return on the market is The annual Treasury bill rate is There are million shares outstanding, and the shares are trading at each. The tax rate is
i
Calculate the weightedaverage cost of capital WACC of XYZ
ii
If XYZ increases its longterm debt to million, it will use the additional debt to repurchase shares. Assuming that the companys borrowing rates are unchanged, how much additional value will be added to that of XYZ shareholders and what is the new WACC of XYZ
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