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Estimate AT weighted-average cost of capital

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Question - Adrian Tutoring (AT), a private company, has 500,000 shares outstanding with no debt AT's current EBIT of $500,000 is not expected to grow in the near future. 1. If AT's stock price is $8 and tax-rate is 30% then estimate AT's weighted-average cost of capital (WACC).

AT is considering to sell $1M of bonds and simultaneously buyback shares. 2. Assuming debt-rate of 7%, determine the following after restructuring: Enterprise Value, Share Price and WACC.

Based on above, discuss how leverage can be advantageous and disadvantageous to common shareholders.

List three Advantages and three Disadvantages if AT were to become a Public Company.

Now suppose that AT has $400,000 of preferred shares outstanding that have a yield of 8% on par and are callable at a 5% premium. If new issues will incur 2 0/0 flotation costs, then at what interest rate would AT refinance?

Reference no: EM133024801

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