(Leverage, WACC, and the required return on equity) Dicks Pet-Way Corporation (DPC) is a chain of pet stores that has an expected cash inflow of $2,160 each year forever. DPCs (after-tax) required return is 18% per year. All cash flow streams in this problem are perpe- tuities, and all of DPCs income is paid out to the firms investors.

A.. If DPCs corporate tax rate is 35%, it is all-equity financed and there are no personal taxes, what is DPC worth (after taxes) in an otherwise-perfect capital market?

Options:

a.6000

b.6800

c.7200

d.7800

e.8400

f.8800

g.9200

h.9600

i.9800

B. Suppose DPC borrows $4,000 at a debt rate of 12%. What will DPC be worth in an otherwise perfect capital market?

Options:

6000

6800

7200

7800

8400

8800

9200

9600

9800

C. What will DPCs WACC be after it borrows the $4,000 (in part b)?

Options:

6000

6800

7200

7800

8400

8800

9200

9600

9800

D. What will be the required return on DPCs equity after it borrows the $4,000?

Options:

6000

6800

7200

7800

8400

8800

9200

9600

9800