Homework Answers
A: WACC = Wd* Rd*(1-Tax) + We* Re
= 30%* 5%*(1-0.4)+ 70%*10%
= 7.9%
Firm value V = FCF/WACC = 1000/7.9% = 12658.23
B: Cost of new equity = D1/Price after flotation + g
= 4.5/(50-10%*50)+ 5%
= 15%
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