Botchett Industries is currently and all-equity firm. They are forecasting an annual EBIT of $540,000 ,which will remain constant. The asset beta of the firm is 1.20. The risk free rate is 2.2% and the market risk premium is 5.2%. Botchett Industries have 260,000 shares outstanding. The cost of debt is 4.9% and the tax rate is 35%. There is no risk of default. a)What is the WACC of this all-equity firm? b)What is the value of this all-equity firm? c)What would the firm's value and overall cost of capital be if the firm uses $2,400,000 (market value) of debt to generate its EBIT of $540,000?

Answer rating: 100% (QA)

To calculate the WACC Weighted Average Cost of Capital of the allequity firm we need to find the cost of equity The formula for the WACC is WACC EV Ke ... View the full answer