Problem
Consider a company that has $2,357m in long term debt and $5,076m in equity, giving total capital of $7,433m. Say that this company has a before tax cost of debt of 4.6%, a cost of equity of 7.5% and a tax rate of 30%.
1. Calculate the weighted average cost of capital (WACC) for this company.
2. If this company generates an annual cash flow of $250m, calculate the value of this company.
3. If this company increased their financial leverage, would the value of the company most likely increase or decrease? Explain your answer.