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  3. company b has a market debt to equity ratio of 3.

Company B has a market debt to equity ratio of 3. Assume its current debt...

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Finance

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Company B has a market debt to equity ratio of 3. Assume its current debt cost of capital is 5%, and its equity cost of capital is 14%. Assume that capital markets are perfect. 1) What is the WACC of Company B? (6 points) 2) If XYZ issues equity and uses the proceeds to repay its debt and reduce its debt to equity ratio to 2, while the debt cost of capital remained 5%. With perfect capital markets, what effect will this transaction have on Company B's equity cost of capital and WACC? (6 points) 3) Suppose Company B issues even more equity and pays off its debt completely. With perfect capital markets what will be the company's WACC and equity cost of capital after debt is paid off? (6 points) 4) Suppose Company B has an equity beta of 1.2 and a debt-to-equity ratio of 0.7. What is the asset beta for Company B assuming its debt beta is zero? (6 points) 5) Suppose Company B increased its leverage so that its debt-to-equity ratio is 0.9. Assuming its debt beta is still zero, what would you expect its equity beta to be after the increase in leverage? (6 points)

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