The following data reflect a firm's current financial condition. Value of debt (book value=market value) $9,000,000 Market value of equity ( P0x shares) Total value of firm Tax Rate (T) 8,065,000 At the current level of debt, the cost of debt (kD) is 8.5% and the firm's beta =1.2. The firm is questioning the possibility of issuing $2,500,000 of additional debt and using the proceeds to repurchase stock. If it does, the interest on new debt would rise to 12% and beta would rise to 2.0. (The old 8.5% debt would remain outstanding.) E[Rx]=9% and RF=4%. (1) Calculate the value of the firm at the higher level of debt and decide if the firm should increase its debt to $11,500,000. (2) The market price of the firm's stock was originally $24.09. Calculate the new stock price (P) at a debt level of $11,500,000 (3) Calculate the value of EPS under the original debt level of $9,000,000 and its value under the higher debt level of $11,500,000. (4) How does your answer to (3) influence the decision you made in answering (1)? EXPLAIN! (5) Calculate the waCC, kr, at the original debt level of $9,000,000. (6) Calculate the WACC, kA, at the new debt level of $11,500,000. (7) Do the results of (5) and (6) above contradict or support the decision you made in answering (1) ? EXPLAIN! The following data reflect a firm's current financial condition. Value of debt (book value=market value) $9,000,000 Market value of equity ( P0x shares) Total value of firm Tax Rate (T) 8,065,000 At the current level of debt, the cost of debt (kD) is 8.5% and the firm's beta =1.2. The firm is questioning the possibility of issuing $2,500,000 of additional debt and using the proceeds to repurchase stock. If it does, the interest on new debt would rise to 12% and beta would rise to 2.0. (The old 8.5% debt would remain outstanding.) E[Rx]=9% and RF=4%. (1) Calculate the value of the firm at the higher level of debt and decide if the firm should increase its debt to $11,500,000. (2) The market price of the firm's stock was originally $24.09. Calculate the new stock price (P) at a debt level of $11,500,000 (3) Calculate the value of EPS under the original debt level of $9,000,000 and its value under the higher debt level of $11,500,000. (4) How does your answer to (3) influence the decision you made in answering (1)? EXPLAIN! (5) Calculate the waCC, kr, at the original debt level of $9,000,000. (6) Calculate the WACC, kA, at the new debt level of $11,500,000. (7) Do the results of (5) and (6) above contradict or support the decision you made in answering (1) ? EXPLAIN