Question: ABC Company currently has $ 1 1 5 , 0 0 0 , 0 0 0 in capital structure composed of $ 2 5 million

ABC Company currently has $115,000,000 in capital structure composed of $25 million in debt @ 7% and 3 million shares of common stock currently selling at $30 per share. The company is at the 34% tax bracket, and has EBIT this year of $15.222 million. ABC plans to increase their debt outstanding to $40 million but the new interest rate would be 8(1)/(2)%. The companys current beta is .976, the risk free rate is 5% and the market risk premium is 5%. Find the required rate of return on the companys equity at the higher debt exposure, the unlevered and levered beta, and the companys WACC, and the market value of the firm. PLEASE SHOW ALL WORK

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!