Based on the book values in the balance sheet of the company presented below, answer the following questions:

Assets	Liabilities and Shareholders’ Equity
Asset (book value) $ 75	Debt $ 25
	Equity $ 50
Total $ 75	Total $ 75

a. What is the book value of the company?

b. Calculate debt (D/V) and equity (E/V) ratios of the company.

c. Suppose the cost of equity and debt are 15% and 10%, respectively. What is the cost of capital for the company?

d. Suppose a company has 6 million of shares outstanding each traded for $4 and the market value of its debt securities is now 20% below its book value. If company’s shareholders demand 20% expected rate of return and bonds yield 14% now and corporate tax rate is 25%, what is the WACC of the company?

Answer rating: 100% (QA)

A Book value of the company is 50 75 25 B DV 2575 033 and EV 5075 067 and Debt... View the full answer