Macbeth Spot Removers is entirely equity financed. Use the following information. Number of shares Price per share Market value of shares Expected operating income Return on assets Data Return on assets Return on equity Asset beta Debt beta Equity beta 1,100 12 Macbeth now decides to issue $6,600 of debt and to use the proceeds to repurchase stock. Suppose that Ms. Macbeth's investment bankers have informed her that since the new issue of debt is risky, debtholders will demand a return of 12.4%, which is 2.6% above the risk-free interest rate. a. What are rĄ and rg after the debt issue? (Enter your answers as a percent rounded to 2 decimal places.) % % $ $13,200 $ 1,980 15% b. Suppose that the beta of the unlevered stock was 0.60. What will BA, BE, and BD be after the change to the capital structure? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Macbeth Spot Removers is entirely equity financed. Use the following information. Number of shares Price per share Market value of shares Expected operating income Return on assets Data Return on assets Return on equity Asset beta Debt beta Equity beta 1,100 12 Macbeth now decides to issue $6,600 of debt and to use the proceeds to repurchase stock. Suppose that Ms. Macbeth's investment bankers have informed her that since the new issue of debt is risky, debtholders will demand a return of 12.4%, which is 2.6% above the risk-free interest rate. a. What are rĄ and rg after the debt issue? (Enter your answers as a percent rounded to 2 decimal places.) % % $ $13,200 $ 1,980 15% b. Suppose that the beta of the unlevered stock was 0.60. What will BA, BE, and BD be after the change to the capital structure? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
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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Transcribed Image Text:Macbeth Spot Removers is entirely equity financed. Use the following information.
Number of shares
Price per share
Market value of shares
Expected operating income
Return on assets
Data
Return on assets
Return on equity
Asset beta
Debt beta
Equity beta
1,100
12
Macbeth now decides to issue $6,600 of debt and to use the proceeds to repurchase stock. Suppose that Ms. Macbeth's investment
bankers have informed her that since the new issue of debt is risky, debtholders will demand a return of 12.4%, which is 2.6% above
the risk-free interest rate.
a. What are rĄ and rg after the debt issue? (Enter your answers as a percent rounded to 2 decimal places.)
%
%
$
$13,200
$ 1,980
15 %
b. Suppose that the beta of the unlevered stock was 0.60. What will BA, BE, and BD be after the change to the capital structure? (Do
not round intermediate calculations. Round your answers to 2 decimal places.)
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