Tucson Inc. will have after-tax unlevered cash flow in the coming year of $8 million, and this cash flow is expected to grow at a rate of 3.5% per year thereafter. Flagstaff has an equity cost of capital of 13%, a debt cost of capital of 5%, and the firm is in the 20% corporate tax bracket. Currently Tucson Inc. has D/A=0.5. The market rate of return is 11% and the risk-free rate is 3%. Use WACC method:
1. Find the WACC for Tucson Inc. at the current leverage (Select] V
2. Find the value of Tucson Inc. at the current leverage (Select]
3. Find the current beta of debt for Tucson Inc. [Select]
4. Find the current beta of equity for Tucson Inc. [ Select ]
5. What would be the cost of equity if Tucson Inc. were to change to an all-equity firm (D/A=0) [ Select] ?
6. Find the Value of Tucson Inc. if it were to change to an all-equity firm [ Select]
7. Explain why value increases or decreases relative to the previous case [ Select]