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Calculate the weighted average cost of capital

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Question: The Chief Financial Officer (CFO) of the Q15.44T Company is interested to identify the cost of capital and value of the company. Currently, the Q15.44T is an all-equity company. Earnings before interest and taxes (EBIT) for the company is expected to be $79,394 forever, and the cost of capital is currently 15.44 percent. The corporate tax rate applicable to this company is 33.4 percent.

- Calculate the market value of Q15.44T

- Suppose Q15.44T floats a $31,131 debt issue and uses the proceeds to reduce share capital. The interest rate is 10.76 percent. Calculate the new value of the business.

- Calculate the new value of equity.

- Calculate the cost of equity of Q15.44T after the debt issue.

- Calculate the weighted average cost of capital.

Reference no: EM132757550

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