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Xyz company has no debt and the cost of equity is 15 the


XYZ company has no debt and the cost of equity is 15%. The current value of the firm is $1,000,000 and XYZ can borrow 10%. Assume XYZ pays no tax.

1. Compute the firm value if XYZ borrows $200,000 and uses the proceeds to repurchase shares.

2. Calculate firm's new cost of equity

3. Calculate the new WACC.

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Financial Management: Xyz company has no debt and the cost of equity is 15 the
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