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ABC Company currently has $115,000,000 in capital structure composed of $25 million in debt @ 7% and 3 million shares of common stock currently selling at $30 per share. The company is at the 34% tax bracket, and has EBIT this year of $15.222 million. ABC plans to increase their debt outstanding to $40 million – but the new interest rate would be 8 ½%. The company’s current beta is .976, the risk free rate is 5% and the market risk premium is 5%. Find the required rate of return on the company’s equity at the higher debt exposure, the unlevered and levered beta, and the company’s WACC, and the market value of the firm. PLEASE SHOW ALL WORK

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M92414843

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