An unlevered firm cea inc has 160000 common shares issued, Ask an Expert

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An unlevered firm, CEA Inc., has 160,000 common shares issued and outstanding. It has a perpetual constant EBIT of $800,000 and an unlevered beta of 1.5. The firm has corporate tax rate of 40%. The market risk premium is 8% and the risk- free rate is 3%. Assume a world of taxes and costs of financial distress.

a) Calculate the value of the firm.

b) Calculate the WACC for the firm.

c) What is the value of a share in the company and what is the EPS?

d) If the firm issues $1,000,000 of bonds with a coupon rate of 10%, and now the beta of the levered firm is 1.85, what is the value of the firm?

e) What is the WACC for the firm with its new capital structure?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91773487

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