Aquanor ASA is financed by equity and debt. The outstanding debt has a book value of...

 

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Aquanor ASA is financed by equity and debt. The outstanding debt has a book value of $75,000,000. The debt is trading at 90% of book value. The yield to maturity is 9%. The company has 2,500,000 outstanding shares selling at $42 per share. Assume that the expected rate of return on Aquanor stock is 18%. The corporate tax rate is 35%. a) What is the company's debt-to-equity ratio? b) What is the company's weighted average cost of capital (WACC)? Assume that the company changes capital structure by substituting all debt by equity. c) What is the company's weighted average cost of capital after change of capital structure? d) Explain the results in b) and c). Aquanor ASA is financed by equity and debt. The outstanding debt has a book value of $75,000,000. The debt is trading at 90% of book value. The yield to maturity is 9%. The company has 2,500,000 outstanding shares selling at $42 per share. Assume that the expected rate of return on Aquanor stock is 18%. The corporate tax rate is 35%. a) What is the company's debt-to-equity ratio? b) What is the company's weighted average cost of capital (WACC)? Assume that the company changes capital structure by substituting all debt by equity. c) What is the company's weighted average cost of capital after change of capital structure? d) Explain the results in b) and c).

Answer rating: 100% (QA)

a To calculate the companys debttoequity ratio we first need to determine the market value of the de... View the full answer