Question

please show in excel

Bumpkins currently finances with 30.0% debt (i.e., Wo = 30%), but its new CFO is considering changing the capital structure to Wq = 60.0% by issuing additional bonds and using the proceeds to repurchase and retire common shares so the percentage of common equity in the capital structure = 1 - Wg. Given the data shown below, by how much would this recapitalization change the firm's cost of equity?

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

C w ENG 06:14 31-07-2020 99+ 29 Х A22 X A B с D E F G H J K L MA 1 2 3 RISK FREE RATE 4 MKT RISK PREMIUM 5 CURRENT BETA 6 7 CURRENT COST OF EQ 8 UNLEVERED BETA 5% 5% 1.05 TAX RATE CURRENT DEBT WEIGHT TARGET DEBT WEIGHT 40% 30% 60% 10.25% (=B3+B5*B4] 0.8352 (=B5/(1+(F4/(1-F4))*(1-F3))] unlevered beta = levered beta /(1+(D/S)(1-t)) 9 1.5869 (=B8*(1+(F5/(1-F5))*(1-F3))] levered beta = unlevered beta *(1 + (D/S)(1-t)) + 10 11 NEW BETA 12 13 NEW COST OF EQUITY 14 CHANGE IN COST 12.93% (=B3+B11* B4] 2.68% (=B13-B7] 15 16 17 18 19 20 21 22 23 24 EJH WENDY IRR, NPV NPV PROFILE HAMADA rosnan REPLACEMENT + ...