Flat-Jack is a no-growth company producing a perpetual, after-tax EBIT of 5 MEUR with a...
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Flat-Jack is a no-growth company producing a perpetual, after-tax EBIT of 5 MEUR with a current total enterprise value of 100 MEUR consisting of 35 MEUR debt (cost 2% p.a.) and 65 MEUR of equity. Suppose the company could increase the after-tax EBIT to 6 MEUR per year (perpetually) by investing more into current operations financed entirely by a new perpetual 25 MEUR loan costing 3% p.a. (new cost of debt) pushing total debt up to 60 MEUR. Corporate Tax Rate is 20%. Flat-Jacks new company WACC after the transaction is
a. 5.33%
b. 6.82%
c. 5.71%
d. 4.85%
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