XYZ currently has $200,000 market and book value of perpetual debt carrying a coupon of 6%. Based on information provided, what would be the new WACC and XYZ's total value?
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XYZ currently has $200,000 market and book value of perpetual debt carrying a coupon of 6%. Its EBIT are $100,000 and its zero-growth company. The current cost of equity is 8.8%, and the tax rate is 45%. The firm has 10,000 shares of common outstanding selling at $60. What is XYZ's current total market value and WACC? The firm is considering moving to a capital structure that is 40% debt and 60% equity. The new funds would be used to replace debt and repurchase stock. It is estimated that the increase in risk resulting the leverage would cause the required return on debt to rise to 7% while the return on equity would increase to 9.5%. What would be the new WACC and XYZ's total value?
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Solution Summary
The expert examines the WACC book values for moving capital structures.
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