Branson Enterprises is currently financed entirely by common stock that is priced to offer a 16% expected return. The company decides to repurchase 40% of its stock and replace it with an equal value of debt yielding 7%. What will be the expected return on common stock after refinancing?
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Branson Enterprises is currently financed entirely by common stock that is priced to offer a 16% expected return
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- Tomorrow Co is financed entirely by equity that is priced to offer a 14% expected return on equity. If the company repurchases 40% of equity and substitutes an equal value of debt yielding 8%, what is the expected return on equity after refinancing? (Ignore taxes and cost of financial distress.)An unlevered firm has expected earnings of $2,401 and a market value of equity of $19,600. The firm is planning to issue $4,000 of debt at 6 percent interest and use the proceeds to repurchase shares at their current market value. Ignore taxes. What will be the cost of equity after the repurchase?An all-equity firm has expected earnings of $14,200 and a market value of $82,271. The firm is planning to issue $15,000 of debt at 6.3 percent interest and use the proceeds to repurchase shares at their current market value. Ignore taxes. What will be the cost of equity after the repurchase?
- A company currently has EBIT of $25,000 and is all-equity financed. The company expect EBIT to stay at this level indefinitely. Now assume the firm issues $50,000 of debt paying interest of 6% per year, using the proceeds to retire equity. The debt is expected to be permanent. What will happen to the total value of the firm? Make a case for why X is the best option and explain what considered, what assumptions you made and why?Costly Corporation is considering using external equity financing. Currently, the firm's stock is selling for $60.00 per share. The firm just paid dividend $2.0 (D0) and the annual growth rate is 5.0% indefinitely. If the firm issues new stock, the flotation costs would equal 10.0% of the stock's market value. What is the firm's cost of external equity?BN Enterprises currently has no debt and a 15.9% cost of equity. The tax rate is 30%. BN plans to issue debt with a cost of 6.7%. The funds will be used to to repurchases shares with a resultant capital structure of 30% debt? What will BN's WACC be after the transaction?
- Cede & Co. expects its EBIT to be $56,000 every year forever. The firm can borrow at 8 percent. The firm currently has no debt, its cost of equity is 12 percent, and the tax rate is 23 percent. Assume the firm borrows $155,000 and uses the proceeds to repurchase shares. a. What is the cost of equity after recapitalization? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)Cede & Co. expects its EBIT to be $54,000 every year forever. The firm can borrow at 6 percent. The firm currently has no debt, its cost of equity is 10 percent, and the tax rate is 21 percent. Assume the firm borrows $151,000 and uses the proceeds to repurchase shares. a. What is the cost of equity after recapitalization? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Cost of equity b. WACC % %XYZ company's common shares are selling for P30.00 per share, and the company expects to set its next annual dividend at P1.50 per share. All future dividends are expected to grow by 6% per year, indefinitely. In addition, XYZ faces a floatation cost of 20% on new equity issues. What is the floatation-adjusted cost of equity? Express your answer in percentage.
- Remex (RMX) currently has no debt in its capital structure. The beta of its equity is 1.42. For each year into the indefinite future, Remex's free cash flow is expected to equal $28 million. Remex is considering changing its capital structure by issuing debt and using the proceeds to buy back stock. It will do so in such a way that it will have a 28% debt-equity ratio after the change, and it will maintain this debt-equity ratio forever. Assume that Remex's debt cost of capital will be 6.11%. Remex faces a corporate tax rate of 15%. Except for the corporate tax rate of 15%, there are no market imperfections. Assume that the CAPM holds, the risk-free rate of interest is 4.7%, and the expected return on the market is 10.34%. a. Using the information provided, fill in the table below. b. Using the information provided and your calculations in part (a), determine the value of the tax shield acquired by Remex if it changes its capital structure in the way it is considering. a. Using the…LuLu In. wants to utilize a different debt-equity ratio than it had previously. It is planning to increase the firm’s current debt-equity ratio of 0.4 to a higher value of 0.8 by issuing debt to repurchase a portion of its common stock. LuLu In. currently has $12 million worth of debt outstanding and faces a pretax cost of debt of 8 percent per year. The firm expects to have an EBIT of $3.6 million per year in perpetuity and pays no taxes. Use the Modigliani and Miller propositions to determine the expected rate of return on the firm’s equity after the issue is announced.What is the dividend payout ratio of this financial accounting question?
