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Caviar Fishfarm Ltd (‘CFL’) is unlevered, has an equity beta of 1.25 and unlevered cash flows...

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Finance

Caviar Fishfarm Ltd (‘CFL’) is unlevered, has an equity beta of1.25 and unlevered cash flows of $76,800 per annum that willcontinue in perpetuity. The expected market return is 10%p.a andTreasury bills earn 2%p.a. CFL is currently considering issuing$300,000 in new debt with an 8% interest rate. CFL would repurchase$300,000 of its own shares, using the proceeds of the debt issue.There are currently 32,000 shares outstanding and the company’seffective marginal tax rate is 34%. Calculate the WACC (after tax)after the restructuring is complete.

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3.6 Ratings (625 Votes)
GIVEN DATA CFL is unlevered and has an equity beta of 125 Therefore the initial debt component of CFL Capital Structure is zero CFL has unlevered cash flows of 76800 per annum that will continue in perpetuity Expected Market Retrun 10 pa Treasury Bill Return 2 pa CFLs effective marginal    See Answer
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