A firm has zero debt and an overall cost of capital of 11.7 percent. The firm is considering a new capital structure with 45 percent debt at an interest rate of 6.8 percent. Assume there are no taxes or other imperfections. What will be the levered cost of equity?
Presley Cleaners has an all-equity capital structure with an equity value of $94,260. The expected earnings are $11,320 based on estimated sales of $60,000. The firm pays no taxes and can borrow at 6.4 percent. What is the value of RWACC?
ATC has a value of $98,000 in a normal economy and $87,000 in a recession. The firm has $90,000 of debt. The probability of a recession is 18 percent. The firm is considering a project that would change the firm values to $105,000 in a good economy and $92,000 in a recession. If the firm accepts this project, the firm value will ______ and shareholder value will ______.