5. ( 10 points) a. Assume that I Can Corp. (Can) is an all equity...
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5. ( 10 points) a. Assume that I Can Corp. (Can) is an all equity firm with a 17.0% cost of capital. The company is expected to maintain a perpetual cash flow. It is looking to add leverage and change its capital structure to 50% equity, 50% debt. If the cost of debt is 6.2%, there is no risk of default, and the tax rate is 20%, what is the new levered cost of equity and WACC of Can? ReL = 25.64% WACC = 15.30% b. What are 2 conditions that must be satisfied to make this capital structure decision irrelevant? QUALITATIVE 5. ( 10 points) a. Assume that I Can Corp. (Can) is an all equity firm with a 17.0% cost of capital. The company is expected to maintain a perpetual cash flow. It is looking to add leverage and change its capital structure to 50% equity, 50% debt. If the cost of debt is 6.2%, there is no risk of default, and the tax rate is 20%, what is the new levered cost of equity and WACC of Can? ReL = 25.64% WACC = 15.30% b. What are 2 conditions that must be satisfied to make this capital structure decision irrelevant? QUALITATIVE
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