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Cost of capital of the company

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Reference no: EM131056710

A company is expected to generate free cash flows of $10 million in the coming year and going forward, the growth rate in free cash flows is expected to be constant at 3% per year. The firm currently has a debt to equity ratio of 1.0. The firm has an equity cost of capital of 12%, a debt cost of capital of 8% and the company is in the 34% tax bracket.

  • What is the cost of capital of the company if it is all equity?
  • What is the value of the company if it operates as an all equity firm?
  • At its current debt to equity ratio of 1.0, what is the cost of capital for the company?
  • At its current debt to equity ratio of 1.0, what is the value of the firm as a levered company?

Reference no: EM131056710

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