A firm makes a surprise announcement that it is going to have a leveraged recapitalization and will target a debt-to-value ratio of 40% ongoing, at which point the debt will have a beta of 0.2. Before this announcement, the firm had a market cap of €400 million, debt-to-value ratio of 20%, equity beta of 1.2, risk-free debt, and a target debt level policy. The corporate tax rate is 20%. What is the equity beta of the firm after the recapitalization
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
A firm makes a surprise announcement that it is going to have a leveraged recapitalization and will target a debt-to-value ratio of 40% ongoing, at which point the debt will have a beta of 0.2. Before this announcement, the firm had a market cap of €400 million, debt-to-value ratio of 20%, equity beta of 1.2, risk-free debt, and a target debt level policy. The corporate tax rate is 20%. What is the equity beta of the firm after the recapitalization
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