What is weighted average cost of capital
Course:- Financial Management
Reference No.:- EM131189046

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The Dogma Daycare has $750 debt outstanding with pretax cost of 6 percent and its common stock has a market value of $1,250. Dogma’s equity beta is currently 1.77. Dogma faces a corporate tax rate of 35 percent. The current risk free rate is 0.2 percent while the expected equity market risk premium is 8 percent.

Calculate Dogma's current cost of equity?

What is Dogma’s weighted average cost of capital?

What is Dogma's EBIT? Assuming the EBIT is a constant perpetuity.

Calculate Dogma's unlevered cost of equity?

Dogma is recapitalizing by issuing $250 in debt and using the proceeds to buy back stock. What is the new value of the firm’s debt and equity?

After the recapitalization, what is Dogma’s required return on equity and WACC?

Dogma now announces instead of issuing $250 in debt, the firm will reduce leverage by issuing $250 of equity and buyback $250 of debt. What is the value of the firm’s debt and equity under this scenario?

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