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1. A start-up Company X currently has all equity structure. The total expected annual cash...

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Finance

1. A start-up Company X currently has all equity structure. The total expected annual cash flow to shareholders is $6,000 and a cost of equity, which is also its WACC, of 8%. Assume that there are no taxes. What is the value of total company X?

2. After 3 years, Company X becomes a growth company and plans to issue $20,000 in debt at a cost of 4% and use the proceeds to buy back $20,000 worth of its equity. Assume that there are no taxes. Use the values given in question 1. Under MM proposition I & II (without taxes)

a. what will be the new value of the company after issuing the debt?

b. What will be the new cost of equity? The new cost of equity

c. What will be the new WACC?

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