Company M is a geared company whose equity has a market value of $1,500 million...

Company M is a geared company whose equity has a market value of $1,500 million and debt has a market value of S300 million. The company plans to issue $200 million of new shares and use the funds raised to pay off some of the debt

Company M currently has a cost of equity of 13% and a WACC of 10% It pays corporate tax at the rate of 30% Company B, an ungeared company operating in the same business sector as Company M, has a cost of equity of 12%

Assume Modigliani and Miller's theory of capital structure with tax applies

Which calculation below shows the correct approach to calculating the new WACC following the planned changes in capital structure?

A

B

C

D