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

question 17

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 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 its effective marginal tax bracket is 34%. What will Nantucket's new WACC be?

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Definitions:

Social Audit

The process of evaluating and reporting on an organization's social and ethical performance, typically assessing the impact on stakeholders and the community.

Ethics Audit

A systematic evaluation of an organization's ethics programs and practices, intended to identify potential areas of risk, non-compliance, or weakness in ethical conduct.

Triple Bottom Line

A sustainability framework that examines a company's social, environmental, and financial performance.

Environment Factors

Elements in the external surroundings that can influence an organism's or entity's ability to thrive, including both natural and man-made conditions.