PlasticGlass Inc., a fiberglass producer, is an all-equity firm that generates perpetual earnings before interest and taxes of $100 million per year. PlasticGlass’ discount rate when it is all equity financed is 18%. The company’s tax rate is 21%. If the firm decides to use debt, its cost of debt would be 9%. Suppose the firm, which was unlevered to begin with, adjusts its capital structure again, but to an unknown amount of debt. Again, it is only a capital structure change without any change in the product market operations. Suppose the WACC of the firm now is 16%. 

Calculate  the value of the firm now.

Answer rating: 100% (QA)

To calculate the value of the firm after the capital structure change we can use the weighted averag... View the full answer