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Suppose the market capitalisation of the firm is £50 million. The firm’s debt-equity ratio is 0.3, and the interest rate (before tax) on its debt is 4 percent, while its cost of equity is 12 percent. The effective corporate tax rate is 35 percent. By assuming that the Modigliani-Miller Theorem with corporate taxes holds, answer the following questions.

i) What is the total value of the firm?

ii) What is the after-tax WACC (weighted average cost of capital) of the firm?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92783783

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