a.
To determine: The market value of the new debt that must be issued.
Introduction: The current value of the firm which is fetched in the market place is termed as market value of the firm. It is commonly referred to as market capitalization. Basically, it refers to the highest expected price that the seller would accept where the buyer would buy the item.
b.
To determine: The value outstanding equity repurchased and the value of remaining equity.
c.
To determine: The payoff of the combined portfolio and the value of the portfolio.
d.
To determine: The face value of the risky debt that has a similar payoff.
e.
To determine: The yield of the risky debt.
f.
To determine: The current WACC if the two outcomes are equally likely.
f.
To determine: The debt and equity cost of capital; also, show how WACC is unchanged in new leverage.
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