If this plan were carried out by how much would the wacc, Finance Basics

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If this plan were carried out by how much would the wacc

Gator Fabrics Inc. currently has zero debt. It is a zero growth company, and it has the data shown below. Now the company is considering using some debt, moving to the new debt/assets ratio indicated below. The money raised would be used to repurchase stock at the current price. It is estimated that the increase in risk resulting from the additional leverage would cause the required rate of return on equity to rise somewhat, as indicated below. If this plan were carried out, by how much would the WACC change, i.e., what is WACC Old- WACC NEW?

New Debt/Assets 35%
Orig cost of equity, rs 10.0%
New Equity/Assets 65%
New cost of equity = rs 11.0%
Interest rate new = rd 7.0%
Tax rate 40%

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Finance Basics: If this plan were carried out by how much would the wacc

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Finance Basics: If this plan were carried out by how much would the wacc

Reference No:- TGS0643435

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