TheDoggy Daycare has $750 debt outstanding with pretax cost of 6 percent and itscommon stock has a market value of $1,250. Doggy Daycare’s equity beta is currently 1.77. Doggy Daycare faces a corporate tax rate of 35 percent. The current risk free rate is 0.2 percentwhile the expected equity market risk premium is 8 percent. All work must be shown step by step in excela. CalculateDoggy Daycare’s current cost of equity?b. Whatis Doggy Daycare’s weighted average cost of capital?c. Whatis Doggy Daycare’s EBIT? Assuming the EBIT is aconstant perpetuity.d. CalculateDoggy Daycare’s unlevered cost of equity?e. Doggy Daycare is recapitalizing by issuing $250 in debt and using the proceeds to buy backstock. What is the new value of thefirm’s debt and equity?f. Afterthe recapitalization, what is Doggy Daycare’s required return on equity and WACC?g. Doggy Daycare now announces instead of issuing $250 in debt, the firm will reduce leverage byissuing $250 of equity and buyback $250 of debt. What is the value of the firm’s debt andequity under this scenario?
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