Help me with this question please? I am preparing for a quiz and I am unable to answer it!
IN the M&M world with corporate taxes and no bankruptcy, Tom Ltd has sold a perpetual bond coupon rate of 4%, at par value of $70million. The risk free risk rate is 2%. After debt issuance, shares are trading at $1.40 and there are 6 million shares outstanding. The corporate tax rate is 20 %. The expected perpetual profits for the firm is $6 million.
With this we need to find out WACC, UNLEVERED COST OF CAPITAL AN COST OF EQUITY IN PERCENTAGE FORM.
This is all the info provided in the question.
Also, following from the prev question, in an M&M world with bankruptcy and taxes, how would you calculate optimal amount of debt for a firm, given the distress and debt cost in decimal form?? Please help!!