What will the wacc be after recapitalization

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Reference no: EM131919701

1. Bruce & Co. expects its EBIT to be $149,000 every year forever. The firm can borrow at 11 percent. Bruce currently has no debt, and its cost of equity is 18 percent. The tax rate is 34 percent. Bruce will borrow $61,000 and use the proceeds to repurchase shares. What will the WACC be after recapitalization?

16.87 percent

18.57 percent

18.29 percent

18.86 percent

17.34 percent

2. Percy's Wholesale Supply has earnings before interest and taxes of $121,000. Both the book and the market value of debt is $190,000. The unlevered cost of equity is 14.7 percent while the pretax cost of debt is 8.6 percent. The tax rate is 35 percent. What is the firm's weighted average cost of capital?

12.65 percent

14.01 percent

13.07 percent

11.94 percent

14.37 percent

Reference no: EM131919701

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