Question: Question 9 (10 marks) Nodebt Ltd has a capital structure of 100% ordinary equity with a current return on equity of 18%: Its Earnings before

Question 9 (10 marks)

Nodebt Ltd has a capital structure of 100% ordinary equity with a current return on equity of 18%: Its Earnings before Interest and Taxation was $142,857. Nodebt pays tax at the rate of 30%.

  1. What is the current market value of Nodebt Ltd? (2 marks)

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  1. What is the Weighted Average Cost of Capital?

(2marks)

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  1. What is the market value of Nodebt Ltd after it issues the debt. (1 mark)

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  1. What is the market value of Nodebt Ltds equity after it issues the debt. (1 mark)

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  1. What is the cost of equity (ke) after it issues the debt. (1 mark)

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  1. What is the new Weighted Average Cost of Capital? (1mark)

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Explain what has happened to the WACC and why? (2 marks)

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