For your company you needto raise $4 M. You estimate existing equity to be $ 1 M.
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Question:
For your company you needto raise $4 M. You estimate existing equity to be $ 1 M. If you issue $ 4 M of equity (so the total equity will be $ 5M), then the required cost of equity will be 16%. Alternatively you can issue a combination of equity and debt. Your bank gave you the following quote for different levels of debt (see below). Your tax rate is 35%
a) Please estimate WACCfor each level of debt
b) How much money should you borrow?
c) Why is the debt interest rate increasing with amount of debt? Explain
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date: