Cunningham Cuisine is an all-equity financed company operating in the culinary arts and family restaurant segments. Cunningham Cuisine has an equity value of $500 million. The culinary arts division is worth $80 million and has a beta of 3.0. The family restaurant division has a beta of 1.2. The risk free rate is 3% and the expected excess return on the market is 5.25%. Assume no taxes. Cunningham Cuisine has decided to issue debt and use the proceeds to buy back some of its stock. As a result, Cunningham Cuisine will now be financed with $100 million in debt and $400 million in equity and the beta of debt will be 0.15. What will be the expected return on the stock? (value of the company is still $500 million)
Cunningham Cuisine is an all-equity financed company operating in the culinary arts and family restaurant segments. Cunningham Cuisine has an equity value of $500 million. The culinary arts division is worth $80 million and has a beta of 3.0. The family restaurant division has a beta of 1.2. The risk free rate is 3% and the expected excess return on the market is 5.25%. Assume no taxes.
Cunningham Cuisine has decided to issue debt and use the proceeds to buy back some of its stock. As a result, Cunningham Cuisine will now be financed with $100 million in debt and $400 million in equity and the beta of debt will be 0.15. What will be the expected return on the stock? (value of the company is still $500 million)
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