A company is all-equity financed at a cost of 9%. Its tax rate is 35%. Capital...
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A company is all-equity financed at a cost of 9%. Its tax rate is 35%. Capital markets are perfect, except for the existence of corporate income taxes. 1. Compute its WACC 2. How would the CoE change if the firm were to change its capital structure by buying back shares and issuing debt (= leveraged recapitalization) so as to reach a 25% D/V ratio? Assume that the CoD would be 3% 3. What would be its new WACC? 4. If there were no taxes, what would be the new CoE and WACC? A company is all-equity financed at a cost of 9%. Its tax rate is 35%. Capital markets are perfect, except for the existence of corporate income taxes. 1. Compute its WACC 2. How would the CoE change if the firm were to change its capital structure by buying back shares and issuing debt (= leveraged recapitalization) so as to reach a 25% D/V ratio? Assume that the CoD would be 3% 3. What would be its new WACC? 4. If there were no taxes, what would be the new CoE and WACC?
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WACC Calculations and Leveraged Recapitalization Analysis 1 WACC Weighted Average Cost of Capital Si... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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