PART 1. Suppose a firm has both a current and a target debt equity ratio of .6,
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PART 1. Suppose a firm has both a current and a target debt equity ratio of .6, a cost of debt of 5.1% comma and a cost of equity of 10%. The corporate tax rate is 34%. What is the firm's weighted average cost of capital?
PART 2. Suppose the firm is considering taking on a warehouse renovation costing 60,000,000 that is expected to yield after tax cost savings of 12,000,000 a year for six years. Should the firm take on the warehouse renovation? Show all equations and fully describe why or why not. Only showing equations without fully explaining the answer will earn no credit.
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