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?
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.