Problemthe nantucket nugget is unlevered and is valued at, Ask an Expert

Accounting

Problem:

The Nantucket Nugget is unlevered and is valued at $720,000. Nantucket is currently deciding whether including debt in its capital structure would increase its value. The current cost of equity is 12%. Under consideration is issuing $300,000 in new debt with an 8% interest rate. Nantucket would repurchase $300,000 of stock with the proceeds of the debt issue. There are currently 32,000 shares outstanding and their effective marginal tax bracket is zero.

Required:

Question 1: What is Nantucket's new cost of equity?

Question 2: What is Nantucket's new weighted average cost of capital (WACC)?

Note: Please show guided help with steps and answer.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91167352

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