a). βU = βL/[(1 + {(1 - T)(D/E)}]
= 1.2/[1 + {(1 - 0.30)(20/80)}]
= 1.2/[1 + 0.175] = 1.2 / 1.175 = 1.02
b). βL = βU*[(1 + {(1 - T)(D/E)}]
= 1.02*[1 + {(1 - 0.30)(0.4/0.6)}]
= 1.02*[1 + 0.467] = 1.02 * 1.467 = 1.50
Cost of Equity = Risk-free Rate + [Beta * Market Risk Premium]
= 7% + [1.50 * 4%] = 7% + 5.99% = 12.99%
c). WACC = [wD * kD * (1 - t)] + [wE * kE]
= [0.40 * 11% * (1 - 0.30)] + [0.60 * 12.99%]
= 3.08% + 7.79% = 10.87%
Value of Firm = FCF / WACC = [EBIT * (1 - t)] / WACC
= [$15.729 million * (1 - 0.30)] / 0.1087
= $11.0103 million / 0.1087 = $101.245 million
Optimal Capital Structure with Hamada Beckman Engineering and Associates (BEA) is considering a change in its...
Optimal Capital Structure with Hamada Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 7%, and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero-growth firm and pays out all of its earnings as dividends. The firm's EBIT is $15 million, and it faces a 25% federal-plus-state tax rate. The market risk premium is 6%, and the risk-free...
Optimal Capital Structure with Hamada Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 8 % , and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero growth firm and pays out all of its earnings as dividends. The firm's EBIT is $13.261 million, and it faces a 40 % federal-plus-state tax rate. The market risk premium is...
Optimal Capital Structure with Hamada Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 8%, and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero growth firm and pays out all of its earnings as dividends. The firm's EBIT is $12.168 million, and it faces a 35% federal-plus-state tax rate. The market risk premium is 6%, and the...
Optimal Capital Structure with Hamada Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 7%, and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero growth firm and pays out all of its earnings as dividends. The firm's EBIT is $15.621 million, and it faces a 40% federal-plus-state tax rate. The market risk premium is 6%, and the...
Optimal Capital Structure with Hamada Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 6%, and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero growth firm and pays out all of its earnings as dividends. The firm's EBIT is $13.565 million, and it faces a 40% federal-plus-state tax rate. The market risk premium is 6%, and the...
Optimal Capital Structure with Hamada Beckman Engineering and Associates (BEA) Is considering a change in its capital structure. BEA currenty has $20 million in d bt carrying a rate of 7%, and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero growth firm and pays out all of its earnings as dividends. The firm's EBIT is s 12.615 million, and it faces a 40% federal plus state tax rate. The market risk premium...
5. Problem 15-10 Optimal Capital Structure with Hamada Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 7%, and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero growth firm and pays out all of its earnings as dividends. The firm's EBIT is $13.568 million, and it faces a 40% federal-plus-state tax rate. The market risk premium is...
Problem 15-10 Optimal Capital Structure with Hamada Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 8%, and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero growth firm and pays out all of its earnings as dividends. The firm's EBIT is $12.168 million, and it faces a 30% federal-plus-state tax rate. The market risk premium is 5%,...
Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 8%, and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero growth firm and pays out all of its earnings as dividends. The firm's EBIT is $14.070 million, and it faces a 40% federal-plus-state tax rate. The market risk premium is 4%, and the risk-free rate is 5%. BEA...
Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 7%, and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero growth firm and pays out all of its earnings as dividends. The firm's EBIT is $12.087 million, and it faces a 40% federal-plus-state tax rate. The market risk premium is 5%, and the risk-free rate is 5%. BEA...