Consider a company that has $2,357m in long term debt and $5,076m in equity, giving total capital
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Question:
Consider a company that has $2,357m in long term debt and $5,076m in equity, giving total capital of $7,433m.
Say that this company has a before tax cost of debt of 4.6%, a cost of equity of 7.5% and a tax rate of 30%: (Include enough working to show you understand the calculations.)
(a) Calculate the weighted average cost of capital (WACC) for this company?
(b) If this company generates an annual cash flow of $250m, calculate the value of this company?
(c) If this company increased their financial leverage, would the value of the company most likely increase or decrease? Explain your answer?
Related Book For
Entrepreneurial Finance
ISBN: 978-1305968356
6th edition
Authors: J. Chris Leach, Ronald W. Melicher
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