Question
Acme Storage has a market capitalization of $104 million, and debt outstanding of $136 million. Acme...
Acme Storage has a market capitalization of $104 million, and debt outstanding of $136 million. Acme plans to maintain this same debt-equity ratio in the future. The firm pays an interest of
7.5% on its debt and has a corporate tax rate of 38%.
a. If Acme's free cash flow is expected to be $21.60 million next year and is expected to grow at a rate of 3% per year, what is Acme's WACC?
b. What is the value of Acme's interest tax shield?
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