Homework Answers
| Levered cost of equity = Unlevered cost of equity+D/E*( Unlevered cost of equity-cost of debt)*(1-tax rate) |
| Levered cost of equity = 15+0.5*(15-5)*(1-0) |
| Levered cost of equity = 20 |
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Hector Enterprises is currently financed with all equity, and its cost of equity capital is 15% debt, and using the mon...
Jackson is an all-equity financed firm; its common stock has an expected return of 12%. Jackson...
Jackson is an all-equity financed firm; its common stock has an expected return of 12%. Jackson plans to issue debt, and use the proceeds to repurchase outstanding shares of common stock. If Jackson issues debt such that its debt-equity ratio becomes .60, the new expected return on equity will be 18%. What will be the market yield of the company's debt? Assume perfect markets.
Hardmon Enterprises is currently an all-equity firm with an expected return of 14.3%. It is considering...
Hardmon Enterprises is currently an all-equity firm with an expected return of 14.3%. It is considering a leveraged recapitalization in which it would borrow and repurchase existing shares. Assume perfect capital markets. a. Suppose Hardmon borrows to the point that its debt-equity ratio is 0.50. With this amount of debt, the debt cost of capital is 4%. What will be the expected return of equity after this transaction? b. Suppose instead Hardmon borrows to the point that its debt-equity ratio...
rdmon Enterprises is currently an all-equity firm with an expected return of 3.5% t is considering...
rdmon Enterprises is currently an all-equity firm with an expected return of 3.5% t is considering a leveraged recapitalization in which would borrow and repurchase existing shares. Assume perfect capital markets. a. Suppose Hardmon borrows to the point that its debt-equity ratio is 0.50 with this amount of debt, the debt cost of capital is 6%. What will be the expected return of equity after this transaction? b. Suppose instead Hardmon borrows to the point that its debt-equity ratio is...
Hardmon Enterprises is currently an all-equity firm with an expected return of 15%. It is considering a leveraged recapitalization in which it would borrow and repurchase existing shares. (Assume perfect capital markets.) a. Suppose Hardmon borrows to th
Hardmon Enterprises is currently an all-equity firm with an expected return of 15%. It is considering a leveraged recapitalization in which it would borrow and repurchase existing shares. (Assume perfect capital markets.)a. Suppose Hardmon borrows to the point that its debt-equity ratio is 0.50. With this amount of debt, the debt cost of capital is 4%. What will the expected return of equity be after this transaction?b. Suppose instead Hardmon borrows to the point that its debt-equity ratio is 1.50. With this amount of debt, Hardmon's debt will...
Zeltron is an all-equity firm with 130 million shares outstanding, which are currently trading for $11.57...
Zeltron is an all-equity firm with 130 million shares outstanding, which are currently trading for $11.57 per share. A month ago, Zelatron announced it will change its capital structure by borrowing $211 million in short-term debt borrowing $244 million in long term debt and issuing $213 million of preferred stock. The 688 million raised by these issues plus another $23 million in cash that Zeltron already has, will be used to repurchase existing shares of stock. The transaction is scheduled...
Zetatron is an all-equity firm with 210 million shares outstanding, which are currently trading for $11.86per share
Zetatron is an all-equity firm with 210 million shares outstanding, which are currently trading for $11.86per share. A month ago, Zetatron announced it will change its capital structure by borrowing $324 million in short-term debt, borrowing $414 million in long-term debt, and issuing $458 million of preferred stock. The $1,196million raised by these issues, plus another $18 million in cash that Zetatron already has, will be used to repurchase existing shares of stock. The transaction is scheduled to occur today....
Hardmon Enterprises is currently an all-equity firm with an expected return of 12%. It is considering...
Hardmon Enterprises is currently an all-equity firm with an expected return of 12%. It is considering a leveraged recapitalization in which it would borrow and repurchase existing shares. a. Suppose Hardmon borrows to the point that its debt-equity ratio is 0.50. With this amount of debt, the debt cost of capital is 5%. What will the expected return of equity be after this transaction? b. Suppose instead Hardmon borrows to the point that its debt-equity ratio is 1.50. With this...
Reliable Gearing currently is all-equity-financed. It has 10,000 shares of equity outstanding, selling at $96 a...
Reliable Gearing currently is all-equity-financed. It has 10,000 shares of equity outstanding, selling at $96 a share. The firm is considering a capital restructuring. The low-debt plan calls for a debt issue of $192,000 with the proceeds used to buy back stock. The high- debt plan would exchange $384,000 of debt for equity. The debt will pay an interest rate of 11%. The firm pays no taxes. a. What will be the debt-to-equity ratio if it borrows $192,000? (Round your...
Equinoa Enterprises currently finances with 20% debt, but its new CFO is considering changing it to...
Equinoa Enterprises currently finances with 20% debt, but its new CFO is considering changing it to 36% debt by issuing additional bonds and using the proceeds to repurchase and retire common shares of stock. Given the following data, by how much would this recapitalization change the firm's cost of equity? Do not round your intermediate calculations. RRF = 5%, Market risk premium, RPm = 6%, Tax rate = 40%, Current beta = 1.65, Current debt ratio = 20%, Target debt...
Zetatron is an all-equity firm with 260 million shares outstanding, which are currently trading for 24.18...
Zetatron is an all-equity firm with 260 million shares outstanding, which are currently trading for 24.18 per share. A month ago, Zetatron announced it with a change its capital structure by borrowing 943 million in short term debt, borrowing 1,036 million in long-term debt, and issuing 813 million of preferred stock. The 2,792 million raised by these issues, plus another 73 million in cash that Zetatron already has, will be used to repurchase existing shares of stock. The transaction is...
Jackson is an all-equity financed firm; its common stock has an expected return of 12%. Jackson plans to issue debt, and use the proceeds to repurchase outstanding shares of common stock. If Jackson issues debt such that its debt-equity ratio becomes .60, the new expected return on equity will be 18%. What will be the market yield of the company's debt? Assume perfect markets.
Hardmon Enterprises is currently an all-equity firm with an expected return of 14.3%. It is considering a leveraged recapitalization in which it would borrow and repurchase existing shares. Assume perfect capital markets. a. Suppose Hardmon borrows to the point that its debt-equity ratio is 0.50. With this amount of debt, the debt cost of capital is 4%. What will be the expected return of equity after this transaction? b. Suppose instead Hardmon borrows to the point that its debt-equity ratio...
rdmon Enterprises is currently an all-equity firm with an expected return of 3.5% t is considering a leveraged recapitalization in which would borrow and repurchase existing shares. Assume perfect capital markets. a. Suppose Hardmon borrows to the point that its debt-equity ratio is 0.50 with this amount of debt, the debt cost of capital is 6%. What will be the expected return of equity after this transaction? b. Suppose instead Hardmon borrows to the point that its debt-equity ratio is...
Reliable Gearing currently is all-equity-financed. It has 10,000 shares of equity outstanding, selling at $96 a share. The firm is considering a capital restructuring. The low-debt plan calls for a debt issue of $192,000 with the proceeds used to buy back stock. The high- debt plan would exchange $384,000 of debt for equity. The debt will pay an interest rate of 11%. The firm pays no taxes. a. What will be the debt-to-equity ratio if it borrows $192,000? (Round your...
Equinoa Enterprises currently finances with 20% debt, but its new CFO is considering changing it to 36% debt by issuing additional bonds and using the proceeds to repurchase and retire common shares of stock. Given the following data, by how much would this recapitalization change the firm's cost of equity? Do not round your intermediate calculations. RRF = 5%, Market risk premium, RPm = 6%, Tax rate = 40%, Current beta = 1.65, Current debt ratio = 20%, Target debt...
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