Black Kettle Industries is not growing earnings and faces a tax rate of 35%. The firm's EBIT is a  perpetuity of $100,000,000 and it makes annual interest payments of $40,000,000 on its outstanding  debt of $600,000,000. Its shares currently trade at $38.50.

a) If a company with the same business risk as Black Kettle, but is completely financed with equity,  uses a WACC of 9%, how many shares of Black Kettle are there?
b) Assuming the firm can borrow at the same rate its debt is currently financed at, what is Black  Kettle's WACC?

Answer rating: 100% (QA)

a If a company with the same business risk as Black Kettle but is completely financed with equity us... View the full answer