Cede & Co. expects its EBIT to be $54,000 every year forever. The firm can borrow at 6 percent. The firm currently has no debt, its cost of equity is 10 percent, and the tax rate is 21 percent. Assume the firm borrows $151,000 and uses the proceeds to repurchase shares. a. What is the cost of equity after recapitalization? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Cost of equity b. WACC % %
Cede & Co. expects its EBIT to be $54,000 every year forever. The firm can borrow at 6 percent. The firm currently has no debt, its cost of equity is 10 percent, and the tax rate is 21 percent. Assume the firm borrows $151,000 and uses the proceeds to repurchase shares. a. What is the cost of equity after recapitalization? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Cost of equity b. WACC % %
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter17: Dynamic Capital Structures And Corporate Valuation
Section: Chapter Questions
Problem 8P
Related questions
Question
![Cede & Co. expects its EBIT to be $54,000 every year forever. The firm can borrow at 6
percent. The firm currently has no debt, its cost of equity is 10 percent, and the tax rate is
21 percent. Assume the firm borrows $151,000 and uses the proceeds to repurchase
shares.
a. What is the cost of equity after recapitalization? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)
b. What is the WACC? (Do not round intermediate calculations and enter your answer
as a percent rounded to 2 decimal places, e.g., 32.16.)
a.
Cost of equity
b. WACC
%
%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc6e14481-08c3-4b37-bfa7-c8f2d2166cc4%2F4bf62205-4f8f-404a-9305-1fc011d07405%2Fwcac43_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Cede & Co. expects its EBIT to be $54,000 every year forever. The firm can borrow at 6
percent. The firm currently has no debt, its cost of equity is 10 percent, and the tax rate is
21 percent. Assume the firm borrows $151,000 and uses the proceeds to repurchase
shares.
a. What is the cost of equity after recapitalization? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)
b. What is the WACC? (Do not round intermediate calculations and enter your answer
as a percent rounded to 2 decimal places, e.g., 32.16.)
a.
Cost of equity
b. WACC
%
%
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