10. Company L has been a 100%-equity-financed company, and it makes $100K operating profit (EBIT)...
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10. Company L has been a 100%-equity-financed company, and it makes $100K operating profit (EBIT) every year. To raise more capital, the companys solo owner just sold 50% of its ownership for $200K. What is the market value of the firms equity in total? What is the weighted average cost of capital (WACC) for the company when there is no debt? If the company borrow another $100K of debt at 10% interest, what would be its WACC? Assume the tax rate is always 40%
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