The firm want to add some leverage to their firm as they are running their business at a 0% debt level.The firm has a projected EBIT of $198,000 and can issue debt at 5.8% per annum. They wish to increase their D/E ratio to 1.08 at the end of the year. The firm estimates their cost of equity to be 14.1% and pays 34% in taxes per year. what is the firm value after it adds this leverage to the firm?

Olsen Outfitters Inc. believes that its optimal capital structure consists of 65% common equity and 35% debt, and its tax rate is 40%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $2 million of retained earnings with a cost of rs = 10%. New common stock in an amount up to $7 million would have a cost of re = 11.0%. Furthermore, Olsen can raise up to $4 million of debt at an interest rate of rd = 11% and an additional $3 million of debt at rd = 15%. The CFO estimates that a proposed expansion would require an investment of $10.5 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places.

Humble Manufacturing is interested in measuring its overall cost of capital. The firm is inthe 40% tax bracket. Current investigation has gathered the following data:Debt The firm can raise debt by selling $1,000-par-value, 10% coupon interest rate, 10-year bonds on which annual interest payments will be made. To sell the issue, anaverage discount of $30 per bond must be given. The firm must also pay flotation costsof $20 per bond.Preferred stock The firm can sell 11% (annual dividend) preferred stock at its $100-per-share par value. The cost of issuing and selling the preferred stock is expected to be $4per share.Common stock The firm’s common stock is currently selling for $80 per share. The firmexpects to pay cash dividends of $6 per share next year. The firm’s dividends have beengrowing at an annual rate of 6%, and this rate is expected to continue in the future. Thestock will have to be underpriced by $4 per share, and flotation costs are expected toamount to $4 per share.Retained…

An unlevered firm has a value of $850 million. An otherwise identical but levered firm has $80 million in debt at a 3% interest rate, which is its pre-tax cost of debt. Its unlevered cost of equity is 10%. After Year 1, free cash flows and tax savings are expected to grow at a constant rate of 4%. Assuming the corporate tax rate is 25%, use the compressed adjusted present value model to determine the value of the levered firm. (Hint: The interest expense at Year 1 is based on the current level of debt.) Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answer to two decimal places.