Bea's Bikes Limited is an all-equity firm that has an EBIT of $450,000. EBIT is expected to
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Question:
a) Calculate the value of the firm.
b) Calculate the WACC for the firm.
c) What is the value (price) of a share in the company and what is the EPS?
d) What is the value of the firm if the firm issues $600,000 of bonds at a coupon rate of 7.5%? The beta for the equity of the leveraged firm is 1.02.
e) What is the WACC for the firm with its new capital structure?
f) What is the value of the firm if the firm issues $1,000,000 of bonds at a coupon rate of 9%? The beta for the equity of the leveraged firm is 1.50.
g) What is the WACC for the firm with its new capital structure?
Based on your calculations above, what is the optimal debt level? Explain briefly.
Related Book For
Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter
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