Question
A firm is solely financed by equity with market value of $50,000 and cost of equity of 10%. It wishes to raise another $30,000 via
A firm is solely financed by equity with market value of $50,000 and cost of equity of 10%. It wishes to raise another $30,000 via corporate bonds with cost of debt of 5% and use all of it to buy back outstanding equity (no cash holding). Hold investment policies fixed. In a MM world with tax rate of 40%,
- The cost of equity after debt is raised is
- The additional value created by debt is
- The WACC after debt is raised is
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Get StartedRecommended Textbook for
Financial Accounting IFRS
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
2nd edition
1118285909, 1118285905, 978-1118285909
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