|
Value of
Debt
|
R0
|
Beta
|
|
0
|
4.0%
|
1.428571
|
|
250,000
|
4.0%
|
1.483015
|
|
500,000
|
4.5%
|
1.542274
|
|
750,000
|
5.0%
|
1.607016
|
|
1,000,000
|
7.0%
|
1.678038
|
|
1,250,000
|
9.0%
|
1.756303
|
|
1,500,000
|
11.0%
|
1.842075
|
|
1,750,000
|
13.0%
|
1.939488
|
|
2,000,000
|
15.0%
|
2.047619
|
|
2,250,000
|
17.0%
|
2.169599
|
EBIT 800,000
Tax Rate 40%
T-bill Rate 3.0%
TSX 10.0%
1. What are the key factors that you need to identify to indicate the world or case that you are using to evaluate the value of the above information and which world or case you are using?
2. Using the information from the table, calculate the value of the firm (a proposition I) and the WACC (proposition II) of the firm if the firm issues $750,000 of debt. Show all of your work!
3. Using the information from the table, calculate the value of the firm (a proposition I) and the WACC (proposition II) of the firm if the firm issues $1,000,000 of debt. Show all of your work!
4. Using the information from the table, calculate the value of the firm (a proposition I) and the WACC (proposition II) of the firm if the firm issues $2, 250,000 of debt. Show all of your work!