Astromet is financed entirely by common stock and has a beta of 1.20. The firm pays no taxes. The stock has a price-eamings multip of 11.0 and is priced to offer a 10.9% expected return. The company decides to repurchase half the common stock and substitute an equal value of debt Assume that the debt yields a risk-free 4.6% Calculate the following Required: a. The beta of the common stock after the refinancing b. The required return and risk premium on the common stock before the refinancing c. The required return and risk premium on the common stock after the refinancing d. The required return on the debt e. The required return on the company (i.e, stock and debt combined) after the refinancing If EBIT remains constant: f. What is the percentage increase in earnings per share after the refinancing? g-1. What is the new price-earnings multiple? g-2. Has anything happened to the stock price? Complete this question by entering your answers in the tabs below.
Astromet is financed entirely by common stock and has a beta of 1.20. The firm pays no taxes. The stock has a price-eamings multip of 11.0 and is priced to offer a 10.9% expected return. The company decides to repurchase half the common stock and substitute an equal value of debt Assume that the debt yields a risk-free 4.6% Calculate the following Required: a. The beta of the common stock after the refinancing b. The required return and risk premium on the common stock before the refinancing c. The required return and risk premium on the common stock after the refinancing d. The required return on the debt e. The required return on the company (i.e, stock and debt combined) after the refinancing If EBIT remains constant: f. What is the percentage increase in earnings per share after the refinancing? g-1. What is the new price-earnings multiple? g-2. Has anything happened to the stock price? Complete this question by entering your answers in the tabs below.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Astromet is financed entirely by common stock and has a beta of 1.20. The firm pays no taxes. The stock has a price-earnings multiple
of 11.0 and is priced to offer a 10.9% expected retum. The company decides to repurchase half the common stock and substitute an
equal value of debt Assume that the debt yields a risk-free 4.6%. Calculate the following:
Required:
a. The beta of the common stock after the refinancing
b. The required return and risk premium on the common stock before the refinancing
c. The required return and risk premium on the common stock after the refinancing
d. The required return on the debt
e. The required return on the company (i.e., stock and debt combined) after the refinancing
If EBIT remains constant:
f. What is the percentage increase in earnings per share after the refinancing?
g-1. What is the new price-earnings multiple?
g-2. Has anything happened to the stock price?
Complete this question by entering your answers in the tabs below.
Req A to E
Reg F to G2
a. The beta of the common stock after the refinancing (Enter your answer rounded to 1 decimal place.)
b. The required return and risk premium on the common stock before the refinancing (Enter your answer as a percent
rounded to 1 decimal place.)
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Astromet is financed entirely by common stock and has a beta of 1.20. The firm pays no taxes. The stock has a price-earnings multiple
of 11.0 and is priced to offer a 10.9% expected retum. The company decides to repurchase half the common stock and substitute an
equal value of debt Assume that the debt yields a risk-free 4.6%. Calculate the following:
Required:
a. The beta of the common stock after the refinancing
b. The required return and risk premium on the common stock before the refinancing
c. The required return and risk premium on the common stock after the refinancing
d. The required return on the debt
e. The required return on the company (i.e., stock and debt combined) after the refinancing
If EBIT remains constant:
f. What is the percentage increase in earnings per share after the refinancing?
g-1. What is the new price-earnings multiple?
g-2. Has anything happened to the stock price?
Complete this question by entering your answers in the tabs below.
Req A to E
Reg F to G2
a. The beta of the common stock after the refinancing (Enter your answer rounded to 1 decimal place.)
b. The required return and risk premium on the common stock before the refinancing (Enter your answer as a percent
rounded to 1 decimal place.)
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