- Radioslave, Inc. is currently an all-equity firm that has 150,000 shares of stock outstanding a market price of $60 a share. The current cost of equity is 12.5% and the tax rate is 32%. The firm is considering adding $1 million of debt with a coupon rate of 9% to its capital structure. The proceeds will be used to buy back shares from the market. The debt will be sold at par value. What is the levered value of the equity? 9,000,000 (1-0.32) a. $9.32 million b. $9.00 million c. $8.32 million d. $8.00 million 0.09 = 6 8 1900,000
- Radioslave, Inc. is currently an all-equity firm that has 150,000 shares of stock outstanding a market price of $60 a share. The current cost of equity is 12.5% and the tax rate is 32%. The firm is considering adding $1 million of debt with a coupon rate of 9% to its capital structure. The proceeds will be used to buy back shares from the market. The debt will be sold at par value. What is the levered value of the equity? 9,000,000 (1-0.32) a. $9.32 million b. $9.00 million c. $8.32 million d. $8.00 million 0.09 = 6 8 1900,000
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
Problem 1PS
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A 236.
Transcribed Image Text:30. Radioslave, Inc. is currently an all-equity firm that has 150,000 shares of stock outstanding with
a market price of $60 a share. The current cost of equity is 12.5% and the tax rate is 32%. The
firm is considering adding $1 million of debt with a coupon rate of 9% to its capital structure.
The proceeds will be used to buy back shares from the market. The debt will be sold at par
value. What is the levered value of the equity?
a.
9,000,000 (1-0.32)
$9.32 million
b. $9.00 million
C. $8.32 million
d. $8.00 million
e. $7.52 million
=
0.09
= 68,000,000
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