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Question 9 (10 marks) Nodebt Ltd has a capital structure of 100% ordinary equity with a...

Question 9

Nodebt Ltd has a capital structure of 100% ordinary equity with a current return on equity of 18%: Its Earnings before Interest and Taxation was $142,857. Nodebt pays tax at the rate of 30%.

  1. What is the current market value of Nodebt Ltd?                                          

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  1. What is the Weighted Average Cost of Capital?

(2marks)

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  1. What is the market value of Nodebt Ltd after it issues the debt.                   (1 mark)

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  1. What is the market value of Nodebt Ltd’s equity after it issues the debt.      (1 mark)

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  1. What is the cost of equity (ke) after it issues the debt.                                    (1 mark)

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  1. What is the new Weighted Average Cost of Capital?                                       (1mark)                                     

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Explain what has happened to the WACC and why?                                             

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Expert Solution

Solution;

ekkarill92 answered 1 year ago
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