3. Molineux corp. has market value of equity at $20 billion, and its debt book value...

Question

Question

business finance

Answer 1

Answer #1

a.

% of Equity = $20 billion / ($20 billion + $4 billion)

= 83.33%

% of Debt = $4 billion / ($20 billion + $4 billion)

= 16.67%

b.

After tax cost of debt = 0.07(1-0.35)

= 0.0455 or 4.55%

c.

WACC = 12% * 0.8333 + 4.55% * 0.1667

= 9.9996% + 0.758485%

WACC = 10.76%

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Answer 2

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