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

question 42

Essay

The Nantucket Nugget is unlevered and is valued at $640,000. Nantucket is currently deciding whether including debt in their capital structure would increase their value. The current of 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 stock with the proceeds of the debt issue. There are currently 32,000 shares outstanding and their effective marginal tax bracket is 34%. What will Nantucket's new WACC be?

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Definitions:

Null Hypothesis

The default hypothesis that there is no significant difference or effect, serving as a starting point for statistical hypothesis testing.

P-value

The probability of observing test results at least as extreme as the results actually observed, under the assumption that the null hypothesis is correct.

Level of Significance

A measure within hypothesis testing that determines the threshold at which the null hypothesis is rejected, often denoted by alpha (α).

Degrees of Freedom

Degrees of Freedom refer to the number of values in a calculation that are free to vary while still estimating certain statistical properties.