Macro has an EBIT of $400,000. The firm currently has a debt of $15,00,000 at an average cost of kd of 10%. The cost of equity is estimated to be ke 16%.i) Determine the current value of the firm using traditional valuation methodii) Determine the firm’s overall capitalization rateiii) The firm is considering to issue capital of $5,00,000 in order to redeem $5,00,000 of debt. The cost of debt is unaffected.However the company’s cost of equity is expected to be reduced to 14% as a result of decrease in leverage. Would you reccomend this action?
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Macro has an EBIT of $400,000. The firm currently has a debt of $15,00,000 at an average cost of k d 1 answer below »