2. MoneySmart is an all-equity company with a firm value of $30 million, and the cost...

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2. MoneySmart is an all-equity company with a firm value of $30 million, and the cost of equity is 16%. The company plans to raise $5 million debt by selling 10% annual coupon bonds to the public, and the sale proceeds will be used to repurchase stocks and change the company's capital structure. a) Assume no taxes or bankruptcy costs, what will be the company's cost of capital after the repurchase? And what will be the cost of levered equity? b) If the company has a target cost of equity of 20%, what will be the target deb-to- equity ratio? And what will be the weight of the equity in the company's total financing? 2. MoneySmart is an all-equity company with a firm value of $30 million, and the cost of equity is 16%. The company plans to raise $5 million debt by selling 10% annual coupon bonds to the public, and the sale proceeds will be used to repurchase stocks and change the company's capital structure. a) Assume no taxes or bankruptcy costs, what will be the company's cost of capital after the repurchase? And what will be the cost of levered equity? b) If the company has a target cost of equity of 20%, what will be the target deb-to- equity ratio? And what will be the weight of the equity in the company's total financing?

Answer rating: 100% (QA)

a If the company raises 5 million in debt the new capital structure will be 530 1667 debt and 8333 e... View the full answer