Explore BrainMass

Explore BrainMass

    Figuring the WACC, the unlevered beta & WACC with new capital structure

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    As the Vice President of a Finance company with the following available data:

    Total assets $ 10,000,000.00
    Debt $ 2,500,000.00
    common equity $ 7,500,000.00
    before tax cost of debt 12.00%
    risk-free rate 5.00%
    Market Return 16.00%
    beta at current capital structure 1.20
    Tax Rate 40%

    What is my firms's current Weighted Average Cost of Capital (WACC)?

    What is my firm's unlevered beta?

    If I am considering changing my firm's capital structure to 40% debt and 60% common equity, to make this change, I will issue additional debt and use the proceeds to repurchase common stock. If I do this, the before tax cost of debt will rise to 14%. What would be my firm's WACC if you adopt this new capital structure?

    © BrainMass Inc. brainmass.com October 9, 2019, 5:29 pm ad1c9bdddf

    Solution Summary

    In a hand written solution as well as a response in a Word doc, the answers are clearly explained and demonstated with use of formulas for calculation.