(Answered) 1 baber corporation has chosen to purchase the additional

Finance

1. Baber Corporation has chosen to purchase the additional equipment. If Baber funds the project entirely with debt, what is the firm's weighted average cost of capital? Explain your answer.

A Comparison of the APV, FTE, and WACC Approaches

2. ABC, Inc., is an unlevered firm with expected perpetual annual before-tax cash flows of $30 million and required return on equity of 18 percent. It has 1 million shares outstanding. ABC is paying tax at a marginal rate of 34 percent. The firm is planning a recapitalization under which it will issue $50 million of perpetual debt bearing a 10- percent interest rate and use the proceeds to buy back shares. Calculate the post-recap share price, earnings per share, and required return on equity.

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