Nodebt Ltd has a capital structure of 100% ordinary equity with a current return on equity of
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Question:
Nodebt Ltd has a capital structure of 100% ordinary equity with a current return on equity of 18%: Its Earnings before Interest and Taxation was $142,857. Nodebt pays tax at the rate of 30%.
- What is the current market value of No debt Ltd? (2 marks)
- What is the Weighted Average Cost of Capital?
What is the market value of No debt Ltd after it issues the debt? (1 mark)
- What is the market value of No debt Ltd’s equity after it issues the debt? (1 mark)
- What is the cost of equity (ke) after it issues the debt? (1 mark)
- What is the new Weighted Average Cost of Capital? (1mark)
Explain what has happened to the WACC and why? (2 marks)
Related Book For
Fundamentals of Corporate Finance
ISBN: 978-1259024962
6th Canadian edition
Authors: Richard Brealey, Stewart Myers, Alan Marcus, Devashis Mitra, Elizabeth Maynes, William Lim
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