The Nantucket Nugget Is Unlevered and Is Valued at €640,000

question 51

Essay

The Nantucket Nugget is unlevered and is valued at €640,000.Nantucket is currently deciding whether including debt in its capital structure would increase its value.The current cost of equity is 12%.Under consideration is issuing €300,000 in new debt with an 8% interest rate.Nantucket would repurchase €300,000 of equity with the proceeds of the debt issue.There are currently 32,000 shares outstanding and effective marginal tax bracket is zero.What will Nantucket's new WACC be?

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