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

question 69

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 stock with the proceeds of the debt issue.There are currently 32,000 shares outstanding and its effective marginal tax bracket is zero.What will Nantucket's new WACC be?

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