Determine beta debt

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The company SOFT develops software for applications and is working in developing a new software application that is similar to the ones developed in the past by the company. Initially without debt, the company decides to issue debt with the objective of financing this new project that will generate a return equal to the cost of capital. SOFT is listed in the stock Exchange and its market capitalization befote the issuance was 57.6M$ and its beta equity was 1.2. SOFT wants to issue perpetual debt, it has a nominal value of 27M$, offers a coupon of 2% and its bond-rating is translated into a Spread of 3%. At the time of the issue, the interest on long term government bond in the US was 6%, the market risk Premium was 6%, and the corporate tax rate was 40%.

a) Find out the new leverage of the company after issuing its debt (D/E).

b) Determine beta debt.

c) Determine the change in the required return on equity due to the debt issue.

d) Determine the WACC of SOFT after the issue.

Reference no: EM131629169

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