Pettit Printing Company has a total market value of $ 100 million, consisting of 1 million...

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Pettit Printing Company has a total market value of $ 100million, consisting of 1 million shares selling for $ 50 million of10% perpetual bonds now selling at par. The company's EBIT is $ 13.24 million, and its tax rate is 15%. Pettit can change its capitalstructure by either increasing its debt to 70% ( based on marketvalues ) or decreasing it to 30%. If it decides to increase its useof leverage, it must call its old bonds and issue new ones with a12% coupon. If it decides to decrease its leverage, itwill call its old bonds and replace them with new 8% coupon bonds.The company will sell or repurchase stock at the new equilibriumprice to complete the capital structure change.
The firm pays out all earnings as dividends; hence, its stock isa zero-growth stock. Its current cost of equity, rs, is 14%. If itincreases leverage, rs will be 16%. If it decreases leverage, rswill be 13% . What is the firm's WACC and total corporate valueunder each capital structure?

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Pettit Printing Company has a total market value of $ 100million, consisting of 1 million shares selling for $ 50 million of10% perpetual bonds now selling at par. The company's EBIT is $ 13.24 million, and its tax rate is 15%. Pettit can change its capitalstructure by either increasing its debt to 70% ( based on marketvalues ) or decreasing it to 30%. If it decides to increase its useof leverage, it must call its old bonds and issue new ones with a12% coupon. If it decides to decrease its leverage, itwill call its old bonds and replace them with new 8% coupon bonds.The company will sell or repurchase stock at the new equilibriumprice to complete the capital structure change.The firm pays out all earnings as dividends; hence, its stock isa zero-growth stock. Its current cost of equity, rs, is 14%. If itincreases leverage, rs will be 16%. If it decreases leverage, rswill be 13% . What is the firm's WACC and total corporate valueunder each capital structure?